When Binance and its founder CZ pleaded guilty to a variety of crimes in Seattle last month, they agreed to allow the US government to appoint a monitor to surveil its business internally for three years. Bureaus of the Treasury will retain access to books, records, and systems of Binance for an additional two years.
Binance’s lax anti-money laundering (AML), know your customer (KYC), and countering the financing of terrorism (CFT) procedures were particularly concerning. In the past, Binance and CZ have admitted that they committed crimes and agreed to disgorge billions in ill-gotten gains.
FinCEN, for example, alleged that Binance failed to report more than 100,000 suspicious transactions. Binance also admitted to helping sanctioned parties transact on its platform.
Beyond Binance’s record-setting $4.3 billion penalty – the largest in the history of the US Treasury – the most punishing part of Binance’s settlement is its upcoming monitorship. Many speculate that Binance cannot operate an exchange that resembles anything like its historical business in the presence of this government monitor.
Installing a government monitor inside Binance
Consider the unprecedented scope of the government’s visibility into Binance’s daily operations. According to Binance’s signed plea agreement, the US government will appoint one or more full-time monitor(s) to carry out three duties from within Binance’s offices.
- The monitor will oversee Binance’s remediation of its compliance failures regarding anti-money laundering and sanctions.
- The monitor will report to FinCEN, OFAC, and the CFTC about Binance’s conduct.
- The monitor will share data, review outcomes, report on findings, and provide recommendations to all parties of the settlement.
In an interview with Law360, Binance chief compliance officer Noah Perlman was quick to recast the unprecedented and expansive terms of this monitorship as a “business accelerator.” Perlman is optimistic that the monitor will help Binance improve its compliance practices.
Interestingly, according to a third-party publication called Unlimited Hangout, Noah Perlman allegedly has ties to the collapse of FTX, the troubled Winklevoss-owned Gemini, and the sex trafficker Jeffrey Epstein.
Read more: Who is Richard Teng, Binance’s new CEO?
There are three agencies overseeing Binance’s monitorship — the Department of Justice (DoJ), FinCEN, and OFAC — yet Perlman speculated that the government will only appoint one, not three, workers.
The US government will select the monitor
Before the end of December, Binance must propose candidates. Candidates must have extensive experience in digital assets and have expertise in regulatory compliance. The government ultimately will select one or multiple workers.
Binance is still subject to another major, unresolved lawsuit. The case SEC v Binance et al. is still ongoing. The SEC alleges that Binance listed unregistered securities, operated a broker-dealer and clearinghouse illegally, and evaded registration requirements to operate in the US.
In summary, Binance’s CCO is doing his best to put on his happy face. He wants the public to believe that the DoJ and US Treasury overseeing a three to five year monitorship from within Binance as an “opportunity.” He believes the surveillance will serve as some sort of “business accelerator” for the world’s largest crypto exchange.