Crypto companies received more fines for poor money controls than traditional financial firms for the first time ever in 2023, according to data compiled by the Financial Times.
In fact, the penalties were hardly comparable. Whereas crypto companies lost $5.8 billion for inadequate customer checks and anti-money laundering controls, their legacy counterparts paid just $835 million for the same, marking a ten-year low.
Most of the 600% discrepancy is accounted for by Binance’s massive $4.3 billion settlement with the Department of Justice in November. The crypto exchange’s founder and then CEO, Changpeng Zhao (CZ), was forced to step down from his position, pleading guilty to sanctions violations the following week.
“The pervasive fraud and criminality in the high-profile crypto arena forced regulators and prosecutors to divert resources,” explained Dennis Kelleher, chief executive of Washington-based Better Markets, to FT.
Kelleher described the Binance settlement as a warning shot to “stop the egregious conduct” among crypto companies “and try to deter it from getting even worse”.
According to WSJ, Binance co-founder He Yi holds at least 10% of Binance’s shares; in the early settlement agreement, the U.S. DOJ wanted her to leave with CZ, but this was not realized in the end; Yi’s only interest is work, she criticized Ronaldo sponsored event for…
— Wu Blockchain (@WuBlockchain) January 3, 2024
Until 2023, banking was the leading financial sector when it came to incurring fines for money laundering violations. As with crypto companies in 2023, banking’s biggest tallies were in years dominated by single multi-billion dollar settlements.
In 2015, for example, BNP Paribas’s $8.9 billion fine for sanctions violations comprised most of the $11.3 billion in total financial crime penalties that year.
Similarly, Goldman Sachs’s $5 billion fine for issues around Malaysia’s 1MDB sovereign wealth fund comprised half of related penalties in 2020.
Crypto Companies Versus US Regulators
Nevertheless, crypto fines are definitely on the rise. The industry recorded 11 fines in 2023 compared to a previous 2 per year on average.
David Lewis, a former head of the Financial Action Task Force, stated:
“Most jurisdictions have yet to regulate crypto firms in line with global standards, so we can expect further fines to come in this area. This lack of oversight and proper regulation is a real concern as the risks of cryptos continue to increase, and criminals seek to exploit loopholes wherever they can.”
The Commodities and Futures Trading Commission (CFTC) revealed in November that nearly half of all enforcement actions it took last year were against crypto firms.
Notable cases included those against Binance, alongside defunct crypto firms like FTX and Celsius, and their disgraced former leaders Sam Bankman-Fried and Alex Mashinsky.
