U.S. prosecutors reportedly plan to charge crypto exchange Binance and its executives, including CEO Changpeng Zhao, for possible money laundering and sanctions violations. Binance has refuted the claim, saying that it has “responded to over 47,000 law enforcement requests” since November 2021. Meanwhile, the crypto exchange reportedly closed a prominent Crypto Twitter trader’s account after a series of suspicious transactions. Finally, rival exchange Crypto.com released proof-of-reserves data – though many find the report lacking.
Personality-Driven
The Block secretly received a total of $43 million over the last two years from Sam Bankman-Fried’s Alameda Research. CEO Michael McCaffrey, who used one of the loans to purchase a multi-million-dollar residence in the Bahamas using an SBF-tied shell company, has stepped down. The Block’s editorial staff denies knowing about the arrangement. Meanwhile, two separate class-action lawsuits have been filed, against FTX and Bored Ape celebrity promoters. Last but not least, Terra founder Do Kwon, who is wanted by South Korea authorities and Interpol, has moved to Serbia through Dubai, CoinDesk Korea reported.
Between a Stock and a…
Trading in shares of London-based Argo Blockchain was suspended in the U.K. and U.S. on Friday without disclosing the exact reason. Earlier in October, Argo said that a deal to raise $27 million from a strategic investor had fallen through, sending its shares tumbling more than 70%. Even as bitcoin miners and crypto exchanges suffer in the Crypto Winter, Cathie Wood’s Ark Investment Management purchased 78,982 shares (worth about $3 million) in Coinbase, its first investment in the crypto exchange in a month.
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Before 2022, sanctions in crypto sounded somewhat extravagant. While governments around the world have been after this industry for quite a while, it still seemed that cryptocurrencies, by their initial promise of privacy, freedom and censorship resistance, wouldn’t become as politicized as the fiat system.
Then 2022 showed how naive those expectations were.
“It became very clear that crypto needs to pay attention to sanctions and the consequences of not doing it can be significant,” Daniel Tannebaum, partner at the Oliver Wyman consulting firm, said. He believes we will see more enforcement actions related to sanctions, and the mainstream crypto industry will need to keep adjusting to that reality.
There is no sign the sanctions pressure on crypto will get any lower in foreseeable future – on the contrary, the U.S. government, for one, believes crypto services must be proactively banning users when they see “clearly observable red flags” and not to wait for the government agencies to guide their hand.
An approach like this might soon make crypto exchanges and other services very similar to banks, effectively excluding “risky” clients and leaving many people frozen out of the financial system.
And it looks like the exchanges will be given the strongest incentives to “de-risk” as hard as they can. Only this fall, two U.S. exchanges, Bittrex and Kraken, had to settle with OFAC and pay fines for failing to prevent Iranians from using their exchanges.
Major U.S. exchanges have been hiring compliance professionals from the banking sector for a while now, Tannebaum said, so it is no surprise “they’re starting to look at how to quantify risk in a manner consistent with the banking sector’s more mature practices.”
Does it mean crypto will be purified of crime and the political untouchables? Chances are, it won’t be. There will always be a market of shadow over-the-counter (OTC) brokers willing to process crime-related and sanctioned crypto. That has been the way the infamous Conti ransomware hacker group used, for example.
With state governments increasing financial sanctions this, crypto services might become as cautious about “risky” users as banks have been traditionally.
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Off-Chain Signals
Former SEC Regulator: Binance’s Proof of Reserves Audit ‘How I Define Red Flag’ (Decrypt)
The Runway is Getting Shorter : Gensler (The Defiant)
Opinion: The Block and the future of crypto media (Protos)
Binance Is Trying to Calm Investors, but Its Finances Remain a Mystery (WSJ – paywalled)
