Binance fined $4.3 billion by FinCEN and OFAC, what did they do wrong?

The U.S. Department of the Treasury issued a press release announcing the largest-ever settlement with the cryptocurrency exchange Binance for violations of the U.S. anti-money laundering (AML) and sanctions regulations. The Financial Crimes Enforcement Network (FinCEN) imposed a total of $3.4 billion, while the Office of Foreign Assets Control (OFAC) imposed $968 million. What exactly did Binance do wrong?

Binance Reaches Settlement with FinCEN, OFAC

Violations of AML and Sanctions Regulations

The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the Internal Revenue Service Criminal Investigation (IRS-CI) collaborated on the investigation. Due to Binance's violations of the Bank Secrecy Act (BSA) and various international sanctions regulations, Binance and its affiliated companies are held accountable for breaching U.S. anti-money laundering (AML) and international sanctions regulations.

• AML: Failure to prevent and report money laundering activities related to terrorist financing, allowing numerous illicit actors to freely trade cryptocurrencies on the platform.
• Sanctions regulations: Providing financial transaction services to regions or individuals sanctioned by the U.S., engaging in transactions related to U.S. individuals. This includes regions like Iran, North Korea, Syria, and specific individuals.

Binance has reached settlements with FinCEN and OFAC:

• The settlement agreement with FinCEN includes a civil penalty of $3.4 billion for Binance, five years of supervision, and numerous compliance commitments, including ensuring Binance completely exits the U.S.
• The settlement agreement with OFAC imposes a penalty of $968 million and requires Binance to continue complying with sanctions regulations and not provide services to U.S. individuals.

Part of Resolving CFTC Lawsuit

This settlement agreement will be part of the global regulations discussed by Binance with the Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC).

FinCEN Enforcement Details

FinCEN stated that Binance admitted to intentionally operating as an unregistered money services business (MSB) in the U.S., concealing and continuing to transact with its U.S. customers.

Binance also admitted to intentionally failing to establish and maintain an effective AML program, not conducting proper Know Your Customer (KYC) procedures for a large number of users, and failing to mitigate risks associated with industry anonymity, allowing users to obscure information on transaction sources and destinations.

Binance never submitted any Suspicious Activity Reports (SARs) to FinCEN, and reports indicated that Binance's former Chief Compliance Officer instructed employees not to report such activities. As a result, the exchange experienced over 100,000 suspicious transactions, including terrorism financing and fraud-related transaction content.

Binance has agreed to retroactively identify past transaction content and report these suspicious transactions to FinCEN.

OFAC Enforcement Details

Between August 2017 and October 2022, Binance conducted over 1.67 million illicit cryptocurrency transactions involving U.S. persons and users in sanctioned regions.

OFAC stated that as early as 2018, Binance knew or should have known that engaging in such activities would violate sanctions regulations. However, to retain its U.S. users, Binance intentionally circumvented its own sanctions-related controls and advised users to use cryptocurrency networks to evade its own control measures, with internal executives, including the CEO, issuing guidance to allow users to continue engaging in transactions blatantly violating sanctions regulations.

Largest Monetary Penalties in History

Regardless of FinCEN or OFAC, the sanctions imposed in this case represent the largest fines on record. This not only highlights the severity of Binance's compliance issues but also indicates the U.S. is indeed strengthening its regulatory oversight in the cryptocurrency industry.

In the future, entities involved in U.S. anti-money laundering or sanctions regulations, whether centralized exchanges, wallet providers, on-chain protocols, or public chains, should take this as a lesson and consider more carefully how to serve U.S. customers.