The Potential Role of Whistleblowers in the Binance Scandal

The Potential Role of Whistleblowers in the Binance Scandal

Olga Hellmann |

In a landmark moment for the cryptocurrency world, on November 21, 2023, U.S. authorities announced a historic settlement involving the crypto-exchange giant Binance and its founder, Changpeng Zhao. The plea included guilty charges and an agreement to pay an astonishing $4.3 billion in penalties, marking one of the largest settlements in the industry's history. This comprehensive resolution addressed a multitude of violations, spanning money laundering, unlicensed money transmitting, sanctions violations, illegal operation of a digital asset derivatives exchange, and various other offenses. As the crypto community grapples with the repercussions, a crucial question arises: What could be the potential role of a whistleblower in this monumental case?

The Charges and the Record-Breaking Settlement

The litany of charges against Binance and Zhao revealed a disturbing pattern of misconduct, including money laundering and sanctions violations. These violations implicated the Bank Secrecy Act (BSA) and various sanctions programs, with allegations of failure to implement programs preventing and reporting suspicious transactions involving terrorists and criminal entities. The settlement's historic nature, totaling $4.3 billion, caught the attention of the financial world and underscored the severity of the transgressions.

The Treasury Department's Perspective

The U.S. Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), played a pivotal role in shedding light on Binance's wrongdoing. The Treasury Department emphasized that Binance's lapses enabled a range of illicit actors, from terrorists to cybercriminals and child abusers, to transact freely on the platform. Treasury Secretary Janet L. Yellen stated that Binance had turned a blind eye to legal obligations in the pursuit of profit, facilitating the flow of funds to entities engaged in criminal activities. The department's press release pointed out violations related to AML (Anti-Money Laundering) and sanctions obligations, establishing a critical backdrop for the involvement of whistleblowers.

The Role of Whistleblowers in AML and Sanctions Violations

The revelation of Binance's extensive AML and sanctions violations aligns with the U.S. government's efforts to combat financial crimes. In 2020, Congress established the AML Whistleblower Program, subsequently refined by the AML Whistleblower Improvement Act. This program not only offers monetary rewards but also provides anti-retaliation protections to whistleblowers reporting money laundering violations, including those under the BSA. The amendments to the AML Whistleblower Program expanded its scope to encompass whistleblowers reporting sanctions violations, further empowering individuals to step forward and expose illicit activities.

Monetary Awards and Protections for Whistleblowers

Qualified whistleblowers under the AML Whistleblower Program stand to receive monetary awards ranging from 10% to 30% of the sanctions collected by the government in cases linked to their disclosures. Despite ongoing efforts by the Treasury Department and FinCEN to draft regulations for the program, whistleblowers remain eligible for awards during this transitional period. The creation and enhancement of such programs underscore the government's commitment to incentivizing individuals to come forward with valuable information that aids in the enforcement of financial regulations.

CFTC Whistleblower Program and Related Action Provisions

The Commodity Futures Trading Commission (CFTC) also played a significant role in the charges against Binance and Zhao. The CFTC filed charges, revealing illegal activities such as offering and executing commodity derivatives transactions for U.S. customers without proper identity verification. The charges emphasized Binance's intentional evasion of basic regulatory obligations while collecting substantial trading fees from U.S. customers. Established in 2010 with the Dodd-Frank Act, the CFTC Whistleblower Program offers monetary awards to individuals reporting commodities violations. Whistleblowers in CFTC cases are entitled to 10-30% of the funds collected by the CFTC in connection with their disclosures.

Confidentiality Protections and Potential Awards

To protect whistleblowers, both the CFTC and FinCEN maintain confidentiality regarding their involvement in successful cases. This confidentiality extends to instances where a qualified CFTC whistleblower's disclosure contributes to the success of related actions by other government agencies. The potential for whistleblowers to receive awards based on sanctions collected by other agencies demonstrates the interconnected nature of enforcement efforts.

The Unprecedented SEC Whistleblower Award

In a separate but equally significant development, the U.S. Securities and Exchange Commission (SEC) recently awarded its largest-ever whistleblower award to an unnamed individual. The award, totaling an astounding $279 million, surpasses the previous record of $114 million. This accolade, funded by an investor protection fund established by Congress, exemplifies the impact whistleblowers can have on exposing securities violations. The SEC's whistleblower incentive program, initiated under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, highlights the critical role whistleblowers play in assisting the SEC in imposing enforcement actions.

Implications for the Binance Case

Considering the magnitude of the Binance case and the intricate web of charges involving AML, sanctions violations, and commodities infractions, whistleblowers could be pivotal in shedding light on the inner workings of the crypto-exchange giant. The potential for whistleblowers to be eligible for awards of up to $1.29 billion under the CFTC and AML Whistleblower Programs adds a layer of complexity to the aftermath of this historic settlement.

The aftermath of the Binance case

As the cryptocurrency landscape grapples with the repercussions of the Binance settlement, the role of whistleblowers emerges as a crucial aspect of enforcing financial regulations. The convergence of AML Whistleblower Programs, the CFTC Whistleblower Program, and unprecedented SEC awards signals a paradigm shift in incentivizing individuals to come forward with information that exposes financial wrongdoing. The interconnected nature of these programs, coupled with confidentiality protections, underscores the significance of whistleblowers in safeguarding the integrity of financial markets. In the aftermath of the Binance case, the crypto industry may witness a surge in whistleblowers stepping forward, fueled by the promise of substantial rewards and the commitment to upholding the rules that govern the financial system.

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