For his role overseeing Binance’s violation of US anti-money laundering (AML) rules, founder Changpeng Zhao (CZ) was handed a $50M fine and could face a prison sentence of 18 months or more after settling the matter with the Department of Justice (DoJ).
As he awaits sentencing, there is perhaps only one man in the world who can truly relate to CZ’s current predicament: former BitMEX CEO Arthur Hayes.
Given the similarities between their respective cases, it isn’t surprising that Hayes has condemned the US justice system’s treatment of Binance and CZ, which he decried as the height of hypocrisy in a recent essay .
Both Zhao and Hayes were charged with violating the Banking Secrecy Act based on their position as crypto CEOs whose respective companies failed to comply with AML rules. In 2022, he was sentenced to two years probation for his role.
However, referencing a string of corporate offenses and high-stakes compliance failings among the world’s largest banks, Hayes argued that the American justice system holds crypto firms to different standards than traditional financial (TradFi) institutions.
Moreover, he pointed out that when banks are charged with criminal offenses, their most senior executives rarely face repercussions.
Observing that bankers have often evaded punishment for crimes that happen on their watch, Hayes argued that “the treatment of CZ and Binance is absurd and only highlights the arbitrary nature of punishment at the hands of the state.”
To demonstrate his point, Hayes cited well–documented AML shortcomings at HSBC.
As the DoJ itself testified in 2012, HSBC’s “blatant failure” to implement proper AML controls facilitated the laundering of at least $881M in illicit drug money through the US financial system.
And yet, the Bank ultimately avoided prosecution, agreeing to settle the case for $1.256M, less than a third of what Binance has now been ordered to pay. What’s more, no individuals were ever indicted.
While the HSBC case is one of the most notorious, banks’ failure to comply with AML regulations in the US and elsewhere is so endemic that most treat the resulting penalties as a recurring business cost.
Although it isn’t an entirely fair comparison, Hayes clearly feels that when crypto firms have failed to meet their AML obligations, the response of regulators has been overly punitive compared to the way banks are treated.
Expressing a belief held by many in the space, he puts this discrepancy down to cryptocurrencies’ revolutionary potential.
In this narrative, the legal system is rigged to protect the interests of TradFi institutions. Meanwhile, crypto firms are alternatively cast as victims, underdogs, and rebels.
But does Binance really fit that mold? The crypto exchange is certainly larger than many small banks. Going forward, it could evolve further in that direction, emulating the HSBCs of the world.
As part of the recent settlement deal, the firm’s celebrity CEO has taken a bow, handing the reigns to his straight-edge successor, Richard Teng. In its next chapter, Binance has the opportunity to mature into something closer to a bank of TradFi exchange. Who knows, it could even surpass its forebearers and leave AML violations behind entirely.