Binance Sees $1 Billion in Withdrawals After Guilty Plea Deal

John Smith

Cryptocurrency exchange Binance has seen roughly $1 billion withdrawn by customers in less than 24 hours since the announcement of its guilty plea deal with U.S. authorities, according to blockchain analytics firm Nansen.

The withdrawals come on the heels of Binance agreeing on Tuesday to pay $4.3 billion in penalties to settle criminal charges from the U.S. Justice Department that executives “willfully and knowingly” violated anti-money laundering laws.

As part of the deal, Binance CEO and founder Changpeng “CZ” Zhao stepped down from the exchange he started in 2017 and was personally fined $50 million after pleading guilty himself.

Despite the large penalty and loss of its high-profile leader, Binance still holds approximately $65 billion worth of customer cryptocurrency assets, according to Nansen’s estimates.

However, the exchange is likely bracing for further withdrawals in the coming days and weeks as investors digest the implications of the criminal charges and change in leadership.

A History of Binance Outflows

The $1 billion withdrawn over the past day is notable but not unprecedented for Binance over a tumultuous 2022. The exchange faced customer assets bleeding off during several past incidents:

  • June 2022: The Securities and Exchange Commission (SEC) filed a lawsuit accusing Binance of operating an unregistered crypto securities exchange in the United States. In the immediate aftermath, the exchange saw $7.2 billion worth of net outflows over just two days, Nansen reported.
  • December 2022: Rumors began surfacing that Binance was facing insolvency issues as withdrawals were temporarily suspended. While Binance adamantly denied financial troubles, nearly $6 billion still flowed out after withdrawals resumed.
  • November 2022: The shocking bankruptcy of rival crypto exchange FTX created industry-wide ripples. Binance netted about $4 billion in net outflows in the week following FTX’s meltdown.

So while significant, this week’s $1 billion withdrawal remains comparatively more modest and controlled. The exchange seems prepared to weather the loss thanks to its still considerable crypto asset reserves.

Yellen: Binance Allowed Funds to Reach Criminals

The eye-popping $4.3 billion settlement stems from years of Binance allegedly violating anti-money laundering regulations meant to prevent financial crimes. Following news of the deal, Treasury Secretary Janet Yellen held a press conference slamming the past practices that landed Binance under criminal investigation.

“Binance’s willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” Yellen told reporters Tuesday evening. “They permitted users to conduct transactions in clear violation of U.S. sanctions laws.”

Specifically, Binance did not adequately verify customer identities or monitor for suspicious transactions to restrict illegal activity. It also allegedly processed crypto transactions originating from IP addresses in Iran and other countries under U.S. sanctions.

The years of weak oversight allowed an untold amount of illicit funds to pass through the exchange from drug traffickers, scammers, and other criminals. It also enabled sanctioned regimes to potentially evade restrictions and access markets for goods or technology purchases.

Zhao Steps Down as CEO But Retains Advisory Role

While accepting responsibility and penalties for Binance, Zhao maintains the company did not intentionally seek to enable illegal behavior. In a post published to X, the social media platform formerly known as Twitter, Zhao wrote that he was “proud” Binance was not found to have misappropriated user funds or engaged in illegal market manipulation.

“The penalties imposed today may seem steep, but we can recover,” Zhao’s message read. “We need to hold ourselves to much higher standards, like we would for financial institutions.”

As part of his own guilty plea, Zhao resigned his position as CEO but will remain connected to Binance in an advisory capacity. The Specifics of his new role were not clearly defined, but the shift paves the way for fresh leadership to take over guiding Binance through necessary reforms.

Still Unresolved: The SEC Lawsuit

While reaching a settlement on criminal charges helps provide closure, Binance still faces an open civil lawsuit levied by the Securities and Exchange Commission in June 2022. The SEC alleges Binance operated an unregistered exchange for crypto securities and defrauded investors, in violation of federal laws.

That lawsuit contained 13 distinct charges pertaining to trading various tokens on Binance’s platform. The allegations also extend to the subsidiary Binance.US, the slimmed-down exchange created to serve American customers in a legally compliant manner.

Binance must still deal with those civil charges carrying potential significant financial consequences despite resolving its dispute with the Justice Department. The SEC aims to recoup investor losses in addition to punitive actions that could match or exceed the penalties just handed down in the criminal case.

Binance leaders have not yet given any indication whether they intend to continue fighting the SEC lawsuit or seek a settlement, now that the criminal charges are settled. Still, the distraction and resource drain of battling another major U.S. regulator could impact Binance’s focus while attempting to overhaul its compliance programs to satisfy authorities.

The Fallout Continues

In his public statements announcing the criminal penalties, current Binance CEO Brian Shroder optimistically framed the deal as removing uncertainty and allowing Binance to work cooperatively with U.S. law enforcement moving forward. However, the practical fallout from years of deficient controls will still likely hamper the exchange as it aims to rebuild trust and market share.

Beyond the initial customer withdrawals in reaction to the news, crypto insiders expect institutional investors and high-value “whales” may continue fleeing Binance in search of alternatives perceived as safer. Rival exchanges like Coinbase and Kraken may capitalize on doubts raised regarding Binance’s commitment to regulatory compliance thus far.

Industry leaders also warn of potential spillover effects that could inhibit mainstream adoption of cryptocurrency as an investment vehicle or transaction platform. The association with criminal penalties for anti-money laundering failures plays into fears cryptocurrencies primarily enable shady activities.

Only by following through on exhaustively increasing compliance programs and financial vigilance can Binance start reversing the damage to its reputation. But until meaningful progress toward those goals materializes with transparent communication, wary consumers may continue rushing for the doors.

The coming months will prove critical as analysts see if Binance can stabilize after this latest setback. For now, its status as the highest volume cryptocurrency exchange worldwide remains intact despite the upheaval.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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