Much anticipated documents recently filed by the US government reveal an extensive monitoring program for crypto exchange Binance, a probe it agreed to as part of its $4.3 billion settlement with the Department of Justice (DoJ) and several other US agencies.
Along with conforming to rigorous compliance commitments, Binance will be visited by one or more monitors to keep it in check. This monitor, proposed by Binance but ultimately approved by the agencies, will conduct its first review within four months of being appointed. Five months after its review, the monitor must submit its first report.
From there, follow-up reviews and reports must be submitted periodically within a similar time frame — meaning Binance will be probed at least six times over the next three years.
The frequency, depth, and scope of these monitors have raised eyebrows within the crypto law community. Some, like John Reed Stark, have called the DoJ’s reach unprecedented.
“Binance’s settlement requires it to offer years of instantaneous access, audit, examination and inspection to DOJ, FinCEN and all types of financial regulators and law enforcement,” the former Securities and Exchange Commission (SEC) attorney wrote on X, “exposing the company — and its customers — to a 24/7, 365-days-a-year financial colonoscopy.”
Past and current Binance customers and employees will be probed
If the monitor discovers any potential or actual misconduct, they are obligated to report it. However, there’s no tangible requirement for Binance to be informed — just US regulators and law enforcement.
The wording of the recently filed documents give a wide range of circumstances in which Binance shouldn’t be informed of the potential misconduct.
If the potential misconduct:
- involves senior management,
- poses a risk to US national security, public health or safety, or the environment,
- involves obstruction of justice, or
- otherwise poses a substantial risk of harm,
then Binance can be kept in the dark.
The findings of these potential misconducts will remain sealed from the public. “Public disclosure of the reports could discourage cooperation, or impede pending or potential government investigations and thus undermine the objectives of the Monitorship,” the filing explains.
These “pending or potential” investigations by the US government may include the SEC’s ongoing case against Binance.
The probe will include former and current employees — including former chief Changpeng Zhao, who is also the subject of the SEC’s lawsuit — and allows the US government to root out bad actors who have likely flourished under Binance’s lax compliance.
“I don’t think Binance’s customers have the slightest clue of the ramifications of this plea and consent decree,” Reed Stark said. “If they’re a drug dealer or a terrorist or a child pornography peddler, they’re going to get caught.”
‘Unprecedented’ government access into a financial firm
The costs to comply with the rigorous protocols demanded by Binance’s plea agreement will be astronomical. Combined with the exposure to customers, the crypto exchange has an immense uphill battle in the coming years to stay afloat.
“To me, it’s only a matter of time before the entire Binance plea deal collapses, resulting in additional charges for Binance, additional charges for CZ and new charges against anyone else (partner, customer, joint-venturer, collaborator etc.) nefariously intertwined with the Binance criminal enterprise,” Reed Stark concluded.
Binance’s new CEO, however, is doing his best to spin it as an opportunity.
“The compliance monitor to me in many senses is a key positive,” said Richard Teng at a summit last week. “That gave a lot of confidence to users including institutional users which are now approaching us in a very aggressive fashion.”
During the same event, however, Teng refused to disclose Binance’s elusive global headquarters. “Why do you feel so entitled to those answers?” he said.
“Is there a need for us to share all of this information publicly? No.”