The historic images of crypto’s kingpin exiting a Seattle court last Tuesday after he pleaded guilty to a host of criminal charges were expected. The timing was also expected, coinciding roughly with one year after the FTX implosion and soon after its founder and CEO Sam Bankman Fried was sentenced. What wasn’t expected was that the Department of Justice and the US government would enter into a historic settlement agreement with Binance’s founder and CEO Changpeng Zhao in which it was agreed that he would cooperate with the authorities to provide them with information, step down from CEO, and have Binance pay up to $4 billion in fines. Changpeng Zhao will also stand trial and may face up to ten years in prison.
However, looking at the documents of the settlements detailing the acts of the crimes and the blatant and voluminous sanction breaking with millions of US Dollars passed to Iran, Syria, North Korea, Cuba, and the Russian-occupied territories in Ukraine, it is clear that with Binance, the US federal authorities and the government have a bird’s eye view of the massive complex international world of sanction-evasion, money laundering, and illicit terrorist financing. Changpeng Zhao will still spend time behind bars and the State also gets a big payoff. Rarely, if ever, do the authorities get their hands on a multi-national and multi-billion-dollar-worth centralised money exchange from which many of the world’s illicit funds have flowed. As for the Department of Justice, this is a victory of truly massive proportions.
Now that Binance is under surveillance by US authorities, they can reach out and identify many bad actors who used Binance to move their funds, and, more importantly, they can obtain a significant amount of information on one of crypto’s last remaining giants: Tether. Tether is being investigated by the Department of Justice for similar reasons as to why Binance was investigated, but it also has its share of investigations in Europe with Italian prosecutors suspecting that USDT (along with bitcoin) was used by the Italian mafia and Latin American groups exporting drugs to Europe in their trading activities. In fact, just after CZ’s plea deal was announced, Tether also announced that it had “onboarded” on its platform the United States’ Secret Service and was cooperating with the FBI. So, basically, Tether has admitted that the US authorities are looking into its books.
So far, it’s business as usual with Tether as it keeps printing new USDT as if the crypto market depends on it. On the other hand, trading volume on Binance is decreasing significantly and the CME has topped Binance in BTC futures open interest futures. If the SEC had claimed that Binance was engaged in wash-trading and self-dealing, Binance would undoubtedly be winding down these activities altogether under the current supervision of the authorities if it hadn’t halted them already. Bad actors will flee Binance and move elsewhere, while Tether enters its moment of truth.
It’s going to be interesting to see how Tether moves forward from this point. If it’s business as usual for Tether, then it may actually have the reserves it frequently boasts about but does not prove to own, but this is not enough at this point. If Tether’s crimes are as extensive as Binance’s, Tether is not guaranteed that it will have a sweetheart deal like Binance’s. The US government’s concern about Tether’s existence will be much higher than Binance’s given that Tether has, allegedly, the biggest crypto bridge for US Dollars: a strategic financial link in crypto that the US government would want to make sure it is either highly regulated and monitored on a constant basis or else, non-existent at all. This would also probably mean bringing Tether onshore as opposed to having it structured in its opaque and offshore manner.
What’s striking in all of this is that the US authorities are taking on the biggest players in the crypto industry by cautiously refraining from indirectly or directly damaging crypto markets. The US government’s intent and policy with regard to crypto is very clear if it is being reflected by the way the federal authorities are conducting their investigations and arraignments. The US wants to reign in crypto, and address criminal ongoings and threats to national security, but it doesn’t want to bring the whole house down.
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