Binance’s VIP traders got sneak peek of record US crypto fine at Singapore dinner

Binance’s VIP traders got sneak peek of record US crypto fine at Singapore dinner

WASHINGTON – As the contours of Binance Holdings’ multi-billion-dollar settlement with the US authorities coalesced in September, some of its biggest traders who were in Singapore attending a conference got a preview.

The bottom line, served alongside a haute, Binance-hosted private dinner in a bustling nightlife district was: The largest crypto exchange in the world would survive its American legal troubles.

That evening, a few dozen or so market makers dubbed VIPs entered a dining room at the posh members-only club called 1880.

Notably absent from the scene was Zhao Changpeng, the firm’s public face who would just two months later plead guilty to a criminal charge in a Seattle courtroom and step down.

However, Mr Richard Teng, Zhao’s replacement-to-be, was there mingling with the guests, according to several attendees, who asked not to be identified discussing the private gathering.

As the dinner wore on, the party broke off into smaller groups. Binance officials were asked directly about details on the company’s legal woes.

The assembled traders pressed Binance officials on how much the firm would pay the US Justice Department and the other American authorities to settle, including raising the likelihood of a US$4 billion (S$5.3 billion) penalty.

After conversations with company representatives present at the dinner, some VIP guests were left convinced that the firm would pay that sum – an amount Binance could easily afford.

A Binance spokesman said the depiction of the event was inaccurate, while declining to identify which aspects were wrong.

Dubai tower

After years of jet-setting, Zhao had stuck closer to his adopted home of the United Arab Emirates in 2023. His sprawling downtown Dubai apartment is next to the Burj Khalifa, which is the world’s tallest building.

Zhao and Ms Yi He, Binance’s co-founder with whom he has children, did not even show up in person at Binance’s own November blockchain event in Istanbul.

Since at least May, Zhao had been mentioning on regular Binance leadership calls that he was preparing to step down, according to four people familiar with the conversations.

The UAE does not have an extradition agreement with the United States, so Zhao’s personal legal situation seemed secure. He also has close relationships with powerful Emiratis, and UAE officials were insistent that Zhao had not violated any local laws.

Still, pressure was ramping up. A possible deal earlier in 2023 with the US Justice Department that could have been better for Zhao fell though after some officials pushed for him to personally face a stiffer penalty, according to a person with direct knowledge of the matter.

Meanwhile, the UAE authorities were desperately seeking to be removed from the Paris-based Financial Action Task Force’s (FATF) gray list, which means increased monitoring and is a blemish on the country’s financial reputation.

In the end, people familiar with the discussions said UAE authorities did not play a role in Zhao’s decision to voluntarily fly to the US and turn himself in to the authorities.

However, Zhao frequently came up in conversations between the US and UAE officials in 2023, according to people familiar with the discussions.

By mid-November, Dubai’s Virtual Assets Regulatory Authority was signalling that it would not grant Binance a full licence to operate imminently with a decision about FATF’s gray list looming in February.

No headquarters

Binance exploded onto the crypto scene in 2017 and almost immediately took on and surpassed larger rivals.

It was originally based in China, but following that government’s crackdown on crypto it moved to Japan and eventually to Malta. Officially, Binance says it has no formal headquarters.

US probes into Binance date back to 2018 when the company was only a year old. Various arms of the US Justice Department and US Treasury Department have been involved. The US Commodity Futures Trading Commission sued Zhao and Binance in March, and also joined the US$4.3 billion settlement in November.

The Securities and Exchange Commission was not part of the settlement announced on Nov 21, and Wall Street’s main regulator appears to be pressing ahead with its June case against Binance and Zhao for allegedly mishandling customer funds and allowing Americans to illegally access the platform.

Binance first ended up on Washington’s radar because it was growing so fast – averaging more than US$1 billion in daily transactions in its first year – and had a significant number of US customers, said Mr Jarod Koopman, executive director for cyber and forensic services at the criminal investigation division of the Internal Revenue Service.

Mr Koopman said the big moment for the case finally came in the summer of 2022 when investigators discovered the missing piece they had been looking for – internal communications that he said showed Zhao had direct knowledge the company was violating US laws.

Meanwhile, Ms Whitney Case, the associate director for enforcement and compliance at the US Treasury’s Financial Crimes Enforcement Network (Fincen), said it was Binance’s own marketing that caught the attention of her agency back in 2018.

She said in an interview that the firm was widely advertising that it would not subject clients to identity verification checks for certain types of accounts.

Fincen began seeking information directly from the company as early as late 2020, Ms Case said.

The effort involved hundreds of thousands of pages of discovery, witness interviews and data analysis to track money flowing in and out of the firm, she said.

Officials ultimately said that Binance improperly accepting American users while shirking US laws led to criminal charges against the company and Zhao.

Significant penalties

Court filings in the case show that at the direction of Zhao and other senior Binance executives, employees encouraged those customers to conceal their US connections by creating new accounts and obscuring their locations.

Zhao faces a maximum sentence of 10 years and fines as high as US$500,000, plus any profits he made from his alleged crimes. His sentencing is set for February. His plea agreement with the US government includes a waiver of his right to appeal, provided that his sentence does not exceed 18 months. He could return to the company in three years.

Meanwhile, Binance is already trying to turn the page – again telegraphing what is coming next to its best clients.

In a recent e-mail addressed to VIPs and institutional clients, Mr Teng, the new CEO, said that the company’s best days lie ahead.

“I look forward to deepening our relationship as we continue to grow together,” he said. “I will be making an exciting announcement on behalf of Binance VIP and Institutional soon that attests to this commitment.” BLOOMBERG

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