What is the cost of ignoring compliance? For the world’s largest cryptocurrency exchange, it’s $4.3 billion dollars. In this episode of Corruption, Crime and Compliance, Michael Volkov and his guest, Matt Stankiewicz, delve into one of the most significant financial crime prosecutions in the history of the Justice Department: Binance Holdings. Under the direction of its CEO, Changpeng Zhao, Binance blatantly disregarded compliance, had no AML programs, and willfully put growth over regulations. Now, they must pay out a settlement split among various agencies, including the DOJ, OFAC, FinCEN, and CFTC. In addition to the settlement, Binance has destroyed their reputation at a time when customers are demanding companies they can trust.

Matt Stankiewicz is a compliance consultant, and currently a partner at The Volkov Law Group, specializing in anti-bribery, corruptions controls, and compliance programs. He previously served as a member of the Ethics and Compliance Monitoring Team, appointed by the DOJ and EPA, and his casework has included global audits of Fortune 100 companies, sanction violations investigations, risk-assessment for third party distributors, and much more.

You’ll hear Michael and Matt discuss:

• Cryptocurrency companies allow customers to exchange government-backed currency for cryptocurrency, such as Bitcoin. Several major crypto companies, including FTX, Celsius, and BlockFi, have faced bankruptcy and legal issues due to non-compliance and shady practices, resulting in customers losing money.
• Binance, the world's largest cryptocurrency exchange, recently settled with multiple agencies in the Justice Department for over $4 billion, with penalties split between forfeiture and criminal fines.
• As part of the agreement, Binance’s main exchange is barred from operating in the US market, which accounts for a third of their revenue, and they also face increased scrutiny by two separate compliance monitors over the next several years.
• Their circumvention of laws and regulations include violations of the Bank Secrecy Act, failure to register as a money transmitting business, and multiple sanctions transgressions.
• Binance's founder and CEO, Changpeng Zhao (CZ), pled guilty to his own set of similar charges, including a failure to maintain an effective AML program, and is facing a multi-million penalty and a potential prison sentence of up to 18 months.
• Binance was established in China, but regularly moved their headquarters from country to country to avoid regulations. Their lack of compliance was driven from the top, with senior leadership actively prioritizing growth over compliance.
• Binance created its US-based exchange as “window dressing” to avoid regulations, and the customer service department assisted its customers in circumventing its own compliance controls, like using a VPN to get past IP blocking technology.
• Though Binance is large enough to continue operating despite the fines, this settlement has sent a strong message to the crypto industry about the importance of reputation, compliance, and customer trust.
• The cryptocurrency industry is currently lacking a “culture of compliance,” but it has reached an inflection point where lawlessness and shady practices are no longer acceptable. In addition to regulators cracking down on them, customers are also applying pressure for these companies to reform.
• The use of blockchain technology in the crypto industry provides unique tools for transaction monitoring and tracking funds, which can help ensure compliance with AML regulations and detect suspicious activities.
• Rogue countries like North Korea are experts in leveraging cryptocurrency in a way that threatens US National Security, so the DOJ must become more adept in investigating and taking action against those that violate US law.

Resources

Matt Stankiewicz on LinkedIn | X (Twitter)

Michael Volkov on LinkedIn | X (Twitter)

The Volkov Law Group