Following the $4 billion settlement to resolve the Justice Department’s investigation into violations of Binance US, Alex Chehade, the Executive Director and General Manager of Binance FZE reaffirmed that for Binance’s Middle East affiliate, it is business as usual.
“Where there’s any global event, the regulator will ask questions. That’s standard practice. So we are speaking with them,” Chehade stated. “But we are business as usual. We are an independent entity.”
In an exclusive interview with Finance Middle East, Chehade said external factors do not impact the core business. “We possess a redefined set of stakeholders; the exchange functions smoothly.”
Discussing overcoming challenges, Chehade emphasised that with clear regulations, Binance can operate compliantly.
“Our company is user-centric, and our primary focus is safeguarding client assets,” Chehade emphasised. “This aligns with what regulators aim for – protecting users and maintaining a robust ecosystem.”
The November 21 settlement
Binance Holdings Limited (Binance), the operator of the world’s largest cryptocurrency exchange, Binance.com, pleaded guilty on November 21, 2023, and agreed to pay over $4 billion to resolve the Justice Department’s investigation into violations related to the Bank Secrecy Act (BSA), failure to register as a money transmitting business, and the International Emergency Economic Powers Act (IEEPA).
Binance’s founder and CEO, Changpeng Zhao, also pleaded guilty on the same day (November 21, 2023) for failing to maintain an effective anti-money laundering (AML) program in violation of the BSA, subsequently resigning as CEO of Binance.
Court documents revealed that Binance prioritises growth and profits over compliance with US law. “Binance launched in 2017 and focused on attracting high-volume, US-based customers,” according to a statement issued by the US Department of Justice.
As a result of serving US customers, Binance was required to register with FinCEN as a money services business and implement an effective AML program to prevent Binance from being used to facilitate money laundering.
“Binance did not comply with US law and failed to implement controls and procedures to prevent money laundering,” the statement read. “Binance also needed to implement controls that would have prevented US customers from conducting transactions with customers in sanctioned jurisdictions, despite knowing that the system it used to match customers for transactions would necessarily cause transactions in violation of IEEPA.”
The US Department of Justice highlighted that despite announcing a block on US customers in 2019 and launching a separate US exchange, Binance took steps to retain many US customers.
Furthermore, Binance lacked crucial components of an effective AML program, failing to implement comprehensive know-your-customer (KYC) protocols and not systematically monitoring transactions or filing suspicious activity reports (SAR) with FinCEN.
It began requiring all users to provide KYC information in August 2021 but allowed users without KYC to continue trading on the exchange until May 2022. Between August 2017 and October 2022, US users conducted trillions of dollars in transactions on the platform, generating over $1.6 billion in profit for Binance.
Who is replacing Changpeng ‘CZ’ Zhao?
With over three decades of financial services and regulatory experience, Richard Teng succeeded Changpeng Zhao as Binance CEO on November 22, 2023.
Richard Teng is an experienced executive with over three decades of financial services and regulatory experience. Teng joined Binance in August 2021 as CEO of Binance Singapore.
Soon after that, he held roles looking after the MENA region, the European region, and ultimately, all regions outside the US as the Head of Regional Markets at Binance. In this role, he led regional teams to secure strategic partnerships, foster innovation, and expand the cryptocurrency ecosystem within the respective regions.
In November 2023, Teng succeeded Changpeng Zhao as Binance CEO.
Before joining Binance, Teng was CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market (ADGM), where he showcased his capabilities as one of the world’s foremost innovative regulators.
His vast experience includes previous roles as the Chief Regulatory Officer of the Singapore Exchange (SGX) and Director of Corporate Finance at the Monetary Authority of Singapore.
Richard received his Masters in Applied Finance (Distinction) from the University of Western Australia and a Bachelor of Accountancy (First Class) from Nanyang Technological University.
Teng took to X on November 22, 2023, to reiterate his support and commitment to the crypto giant. “To ensure a bright future, I intend to use everything I have learned over the past three decades of financial services and regulatory experience to guide our remarkable, innovative, and committed team,” he said.
He reassured users about the company’s financial strength, security, and collaboration with regulators while driving growth and Web3 adoption.
UAE regulations and Binance FZE’s role
Regarding UAE regulations, Chehade highlighted the region’s appeal to many companies due to its favourable conditions and transparent regulatory frameworks in Abu Dhabi and Dubai. He emphasised the Middle East’s offering of specific compliance guidelines for virtual assets.
“The clarity of regulations in Abu Dhabi and Dubai is around, so yeah, we’re continuing to see businesses, especially in the blockchain business.”
Chehade argued that the Middle East, particularly Dubai with its Virtual Assets Regulatory Authority and Abu Dhabi with its Global Market framework, stands out by offering specific compliance guidelines for virtual assets. He further stated that many other jurisdictions need more knowledge or capacity to regulate the burgeoning industry effectively.
“UAE has already offered the legal frame and regulations to many crypto firms, including Binance FZE, Kraken, and Huobi, opening the market for more approved brokers and dealers,” highlighted Mazen Salhab, Chief Market Strategist – BDSwiss MENA.
With approximately 600 employees in its Dubai operation, Binance FZE aims to foster a healthy environment for Web3 companies in the region. It operates separately from its global operations as a regulated exchange in Dubai.
Plans for expansion
Regarding expansion plans, Chehade indicated that while there are no explicit plans yet, they are engaging with regulators and await regulatory frameworks to proceed.
“We need to wait for other countries to form and formulate their ideas on regulation,’ he said. “We’re in dialogues with most regulators, and when they establish their regulatory framework, we can move.”
What’s next for Binance?
Post-settlement, Binance faces a new reality with strict oversight, including a five-year monitorship and an exit from US operations. Despite not being involved in Binance.US’ legal challenges with the SEC, the CEO confirmed that the costs of compliance and settlements are integrated into Binance’s financial strategy.
In an interview with Cointelegraph, Teng highlighted Binance’s unique regulatory environment, which operates across 18 jurisdictions and is under intense scrutiny. He noted significant investments in enhancing the compliance team, recruiting experts from regulatory bodies and leading financial institutions like the SEC, Morgan Stanley, and Barclays.
Looking forward, Binance is establishing significant operations in the UAE for its MENA region and France for its European base. Teng is optimistic about the potential brought by Europe’s Markets in Crypto-Assets regulations, offering clarity for operations across 27 jurisdictions.
In the UAE, Binance FZE, the subsidiary of Binance, has obtained an MVP license, enabling it to provide cryptocurrency trading and crypto asset brokerage services. This official debut in the UAE marks a crucial step towards offering regulated, secure, and reliable cryptocurrency services to customers and investors in the region.
“Despite facing challenges in the region, particularly in complying with local and international financial regulations, Binance is dedicated to enhancing its reputation and commitment to financial regulations, positioning itself as one of the most innovative and powerful companies in the industry,” explained Rania Gule Market Analyst at XS.com. “Despite some legal setbacks, continuous development efforts allow the company to overcome challenges.”
Looking ahead, Rania reckons the company is diligently addressing past administrative and financial errors, tackling challenges by strengthening compliance policies and collaborating with regulatory authorities in the UAE and worldwide. Through ongoing improvement and collaboration, Binance aims to maintain its status as a leading player in the cryptocurrency industry.
