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Business News/ Technology / Binance Begins Again With U.S. Oversight. Will It Survive?
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Binance Begins Again With U.S. Oversight. Will It Survive?

wsj

The global crypto exchange’s new regime will force a significant shift in how the firm operates.

Binance agreed to pay over $4 billion in fines and consented to have a government-approved monitor oversee the firm’s activities.Premium
Binance agreed to pay over $4 billion in fines and consented to have a government-approved monitor oversee the firm’s activities.

Binance’s second act starts now.

The largest global crypto exchange and its chief executive and co-founder, Changpeng Zhao, pleaded guilty last week to ignoring anti-money-laundering rules while serving U.S. customers. Binance agreed to pay over $4 billion in fines and consented to have a government-approved monitor oversee the firm’s activities. Zhao, who could face jail time, stepped down as CEO.

The shake-up leaves the six-year-old firm in the hands of Richard Teng, who was a regulator in Abu Dhabi and Singapore before joining Binance in 2021. He has said he believes the firm is in good shape and is ready to move forward.

“The fundamentals of our business are very strong," Teng said on X, formerly Twitter. He said Binance is profitable and has no debt.

But people inside Binance and around the crypto world say the firm faces stiff challenges in its new incarnation.

The new regime at Binance will force a significant shift in how the firm operates. Binance’s plea agreement with the Justice Department obliges the firm to give a government-approved monitor access to internal documents, records, facilities and employees, as well as former employees, third-party vendors, consultants and contractors.

The intrusiveness could spook users who don’t want their data handed to U.S. authorities.

A Binance spokesman said transactions from institutional users are rising. “Rigorous standards are attractive to users," he said.

The firm will also have to boost money-laundering controls and file over 100,000 reports on suspicious activities it never handed over to authorities. And it will have to keep Americans, once its main source of revenue, off the platform.

The Binance spokesman said the company had been tackling those issues.

Even before the DOJ settlement last week, Binance’s dominance was already dwindling. It left Russia under pressure from U.S. authorities and was shut off from other markets that didn’t give it registration approval like Germany. Some crypto firms stopped using the platform under the threat of enforcement actions in the U.S. and elsewhere.

Bobby Zagotta, chief commercial officer of Luxembourg-based crypto exchange Bitstamp, said institutional traders who continue to work with Binance “must now consider a set of new risks," including an untested CEO and working with a company with a criminal history.

Outside the U.S., Binance will have to convince regulators it can operate even as Zhao, now an admitted felon and facing up to 18 months in prison, remains the company’s owner. Binance said it would set up a board with independent directors as part of the deal with the U.S. regulators.

Zhao and his inner circle have controlled all aspects of the company since its 2017 launch.

Yi He, a co-founder and Zhao’s romantic partner with whom he has children, remains at the company. The DOJ said Zhao instilled in Binance a culture of noncompliance that drove it to seek profits even from terrorists, cybercriminals and child abusers trading on the platform.

Some employees are worried that Yi He could clash with Teng about the new direction of the company.

Once a host of a Chinese TV travel show, Yi He took the helm of Binance’s venture capital arm last year and often has weighed in on legal and regulatory issues, according to people who have dealt with her. Over the years, she sent missives to staff, laden with wartime analogies, spurring them to defend Binance from enemy “counterattacks."

In a statement, Yi He said she is fully aligned with the new direction of the company and has always been supportive of Teng for CEO.

“Richard’s experience in the traditional financial industry and financial regulation will guide us through this challenging period, helping us to go from 160 million users to one billion users," she said.

So far, reactions to the shift at Binance have been muted. After the firm’s guilty plea, customers pulled almost $1 billion in tokens traded on the Ethereum blockchain from the exchange, which include coins such as tether, shiba inu and ether, but not bitcoin. The exchange holds $65 billion across all its tokens, according to analytics firm Nansen.

Binance’s native cryptocurrency, BNB, fell about 6%, while other cryptocurrency prices moved little.

But Binance was in retreat even before the guilty pleas. It cut its staff to about 5,000 workers from over 8,000 at the beginning of the year, according to insiders. Some of the layoffs were in the compliance department, the unit that handles money laundering and sanction matters.

The firm is already posting new jobs and adding back to its compliance department. It currently has seven positions open for suspicious activity investigators. Those hires will likely come at a premium to those previously laid off.

Staff expect that the DOJ settlement and the pending appointment of an independent monitor will protect the compliance department from further layoffs. Some employees are optimistic that stricter compliance they have long advocated for could come about as a result.

Binance has a strict HR elimination system called, “bottoming-out," where lower-performance employees are dismissed from the business. Zhao established this system.

At a virtual all-hands meeting the day after he pleaded guilty, Yi He joked that Zhao had been bottomed out, according to people present.

Zhao has sought to return to the United Arab Emirates, where he resides, until his sentencing. A federal judge temporarily blocked that request Monday.

In a note to staff, Zhao told employees that Binance would be fine and that he would survive.

Then he quoted Star Trek: “I need everyone to continue performing admirably."

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com, Caitlin Ostroff at caitlin.ostroff@wsj.com and Angus Berwick at angus.berwick@wsj.com

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