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US Authorities Close In: Binance Expected to Pay Penalties for Regulatory Probes

Sead Fadilpašić
Last updated: | 3 min read
Source: AdobeStock / photo_gonzo

Major crypto exchange Binance will likely pay monetary penalties to settle current investigations by the US authorities, the Wall Street Journal reported, citing the firm’s chief strategy officer.

According to Patrick Hillmann, the company is working on patching the compliance gaps and mistakes made earlier in its existence – but it is likely that it will be asked by the regulators to pay the fines nonetheless. 

This may be the way for the exchange to end the regulatory and law-enforcement investigations into its business.

Hilman was cited by the WSJ as stating that, 

Binance is “working with regulators to figure out what are the remediations we have to go through now to make amends for that.” […] The outcome will be “likely a fine, could be more.… We just don’t know. That is for regulators to decide.”

These above-mentioned gaps occurred due to Binance’s fast growth, the firm’s chief strategy officer argued, especially since the business was started by software engineers who were not knowledgeable about the rules and laws that addressed the risk of bribery, corruption, money laundering, and economic sanctions.

Per Bloomberg, citing Hilman, the company’s initially small staff was spread too thin as the exchange was working on international expansion, compliance, and cybersecurity. 

“It’s a tremendous burden. […] As a result, there were some gaps in our compliance system in the first two years.”

He claimed that the gaps have since been closed.

As for how much they’d have to pay, or when for that matter, Hillmann could not say. However, per the WSJ, he added that,

Binance is “highly confident and feeling really good about where those discussions [with the US authorities] are going. […] It will be a good moment for our company because it allows us to put it behind us.”

However, the regulatory landscape in the US remains unclear, thus being quite tricky for crypto businesses to maneuver. Hillmann said that it was a “very confusing time” for Binance to understand how the regulators in the country want to oversee this specific market. 

US authorities on the move

The recent moves made by US authorities “would have a really deep and long-lasting chilling effect” in the country, Hilman was quoted as saying. 

Just this month, among a number of other related events, blockchain infrastructure platform Paxos announced that the SEC had plans to take enforcement action against it over the issuance of Binance USD (BUSD), while the New York State Department of Financial Services (DFS) ordered Paxos to cease minting BUSD. 

It was then disclosed that Circle, the US-based payments company that issues the USD coin (USDC) stablecoin, had alerted the New York watchdog that it had found some discrepancies in the blockchain data that suggested that Binance did not store enough crypto in reserve to support the number of tokens it had issued. 

Also, as reported, over $400 million allegedly flowed from the Binance.US account at California-based Silvergate Bank to Merit Peak, a trading firm linked to  Binance CEO Changpeng Zhao (CZ), over the first three months of 2021. A Binance.US spokesperson claimed that Merit Peak was “neither trading nor providing any kind of services on the Binance.US platform.” Notably, the SEC launched a probe in February 2022 into the relationship between Binance.US and trading firms Sigma Chain AG and Merit Peak. 

Earlier this year, US authorities sent subpoenas to American hedge funds and market-making companies dealing with Binance earlier this year, asking for records of their communications with the exchange. 

Meanwhile, major crypto exchange Kraken agreed to pay $30 million in fines to the US Securities and Exchange Commission (SEC) a few days ago to reach a settlement and end a civil investigation over its staking investment program, without admitting or denying wrongdoing.

After Kraken reached a deal with the SEC and decided to stop offering staking services or programs to clients in the US, Coinbase CEO Brian Armstrong said that his exchange’s crypto-staking services were not securities, adding that he was willing to defend this in court. 

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