WASHINGTON (TND) — Cryptocurrency is facing another moment of vulnerability after another high-profile leader of a major company in the industry has been roiled in legal issues, once again raising questions about its credibility with lawmakers, regulators and skeptical investors.
The guilty plea of Binance founder and CEO Changpeng Zhao is the latest legal victory for federal prosecutors and a government that has been increasingly wary of the industry in recent years amid resistance to regulation and scandals that have further emboldened prosecutors and regulatory agencies to bring the industry into compliance with U.S. laws.
Zhao pleaded guilty to money laundering charges last week in a settlement with the Department of Justice that also required him to step down as CEO. The company also pleaded guilty to breaking anti-money laws and to pay a fine of $4.3 billion, the largest enforcement action in the history of the Department of Treasury.
Zhao and Binance’s pleas come just weeks after FTX founder Sam Bankman-Fried in a multibillion-dollar fraud scheme that caused the exchange to collapse. The takedowns of two of the largest figures of the industry also follows stepped up enforcement action targeting other large exchanges for offering services the Securities and Exchange Commission has deemed risky, vague and rife with fraud.
The result is a series of stains to the industry’s reputation, which is already having to overcome hits from high-profile scams, being used to work around sanctions and to help finance terrorism.
Some cryptocurrency leaders said Zhao’s plea will help the industry turn the corner as countries try to figure out how to regulate it to varying degrees.
“The enforcement action against Binance, that’s allowing us to kind of turn the page on that and hopefully close that chapter of history,” Coinbase CEO Brian Armstrong said in an interview with CNBC on Monday.
Binance struck a similar tone in the wake of the settlement, with new CEO Richard Teng writing in a blog post Monday that the company has “turned the page” on the company’s histrocial challenges.
“Over the course of the past two years, Binance has systematically worked to address its past compliance issues through a series of significant efforts to recruit, hire, and retain the right personnel to strengthen Binance’s compliance program and culture,” Teng wrote.
But it’s unclear whether more skeptical members of Congress, the DOJ and aggressive regulatory agencies like the SEC will see it that way. Lawsuits from the SEC targeting Coinbase, Binance and Kraken are still pending and could continue the line of companies and executives being convicted of violating U.S. laws.
“It’s only going to embolden the Department of Justice and the SEC and other federal agencies to bring more crypto litigation, so I don’t see this as being ‘let’s turn the page, we got three bad actors out of the way.’ In fact, they got two huge whales, (Bankman-Fried) and (Zhao),” said Josh White, an assistant professor of finance at Vanderbilt University and former SEC economist.
Federal prosecutors have already issued multiple warnings about a continued crackdown of illicit activity being operated or financed through various cryptocurrency exchanges and offered another after the Binance agreement.
“The message here should be clear: Using new technology to break the law does not make you a disruptor. It makes you a criminal,” Attorney General Merrick Garland said after Zhao’s plea was announced. “This Justice Department has no tolerance for crimes that threaten our economic institutions and undermine public trust in the fairness of those institutions. And we will hold accountable the individuals who commit and profit from them.”
The steady line of crypto-related convictions over the last year have added onto the delays from Congress to establish regulatory frameworks and guardrails for the industry to work under in the U.S.
Bankman-Fried’s close proximity to legislative efforts and millions in political donations to members to both parties have also put a stain on any advancements made. Some efforts are still ongoing, including an effort to crack down on money laundering and sanctions abuses, though it’s unclear if there will be enough bipartisan will to pass them with an election year quickly approaching.
Some parts of the industry have fought efforts to establish regulations for cryptocurrency, while proponents argue that it would help add some credibility with consumers and give companies a more solid base of rules to operate under.
“That’s always been the double-edged sword on legislation is that people didn’t want to legislate it, because they didn’t want to validate it and give it any kind of credibility. But I don’t see that as a reason not to legislate,” White said.