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Union Minister issues stark warning on cryptocurrency-driven criminal activities, cites Binance and FTX incidents as a cautionary tale

Zhao stepped down following the penalty imposed by the US Justice Department on the platform for turning a blind eye to criminal activities, including money laundering. In a press release, the Justice Department said that Binance admitted to engaging in anti-money laundering, unlicensed money transmitting, and sanctions violations.

On 22nd November, Union Minister of State for Electronics & Technology, Rajeev Chandrasekhar issued a stark warning on cryptocurrency-driven criminal activities. Citing the examples of Binance and FTX, he wrote on X (formerly Twitter), “Lesson to be learnt from Binance, FTX and other ‘crypto’ companies. “Using new technology to break the law does not make you a disrupter. It makes you a criminal. PM Narendra Modi ji govt’s approach since 2022 to deterring crypto speculation has saved countless Indians from crypto meltdown and losses.”

Indian government guidelines for crypto trade

In February 2022, Finance Minister Nirmala Sitharaman announced that the government would earn 30% of every penny of profit earned by way of transfer of virtual money. Also, to minutely capture the crypto transaction details, the Union Budget 2022 introduced a 1% tax deduction at source (TDS) for every transaction beyond a threshold limit. However, that does not mean cryptocurrency is a legal tender in India. These are considered assets or property as per the law. Companies and individuals can transact in crypto assets as long as they abide by the existing laws. To tighten the laws around crypto assets, the Indian government imposed existing anti-money laundering provisions on them. That means the exchanges have to report the transactions to the Financial Intelligence Unit India (FIU-IND) as per the law.

Notably, in October this year, OpIndia reported that ISIS was seeking funds using cryptocurrency. Our detailed report can be checked here. Finance Minister of India Nirmala Sitharaman has warned several times that cryptocurrency is being used for terror funding.

Binance’s CEO stepped down over money laundering activities on the platform

The minister was quoting Binance’s former Chief Executive Officer (CEO), Changpeng “CZ” Zhao, who stepped down from his position after Binance admitted to turning a blind eye to money laundering and other criminal activities happening on the platform. In a long post on X, Zhao said, “I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.” Notably, Binance has to leave the US market completely and appoint a monitor for five years who will oversee the compliance with the orders.

US Justice Department department imposed a USD 4 billion penalty on Binance

Zhao stepped down following the penalty imposed by the US Justice Department on the platform for turning a blind eye to criminal activities, including money laundering. In a press release, the Justice Department said that Binance admitted to engaging in anti-money laundering, unlicensed money transmitting, and sanctions violations.

Furthermore, as part of the settlement, Binance agreed to pay over USD 4 Billion to settle the investigation by the Justice Department. Zhao pleaded guilty to failing to maintain an effective anti-money laundering program on the platform. The penalties imposed by the Justice Department, including the financial penalty, are being seen as a “significant development in cryptocurrency regulation” in the US.

The penalties will be paid to the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Asset Control (OFAC). While FinCEN has assessed a penalty of USD 3.4 Billion, OFAC has assessed a penalty of USD 968 Million.

US Treasury’s Secretary emphasised on ‘playing by the rules’

Secretary of Treasury Janet Yellen said in a post on X, “Today we announced the largest enforcement action in Treasury’s history against Binance, the world’s largest virtual currency exchange.”

She added, “Binance let illicit actors transact freely on its platform, allowing money to flow to terrorists, cybercriminals, and child abusers. It willfully failed to have an effective anti-money laundering program and executed over 1.6 million trades that resulted in sanctions violations.”

She issued a warning to the industry players: “If virtual currency exchanges and financial technology firms wish to realise the tremendous benefits of being part of the US financial system and serving US customers, they must play by the rules. And if they do not, the US government will act.”

She added, “Today’s actions hold Binance accountable for its wrongdoing by ensuring Binance leaves the US market and sending a clear message to bad actors in the virtual currency industry.”

Notably, a separate exchange called Binance.US is the operating name of BAM Trading Services, an affiliate of Binance. As it is a registered money services business in the US, Binance’s exit will not affect its functioning.

What happened at FTX?

FTX was once the third-largest cryptocurrency exchange in the world. It collapsed in November 2022 and caused a ripple effect in the crypto industry. CoinDesk revealed that FTX’s close-tied trading firm Alameda Research held assets primarily in speculative tokens, which led to the crisis and mass customer withdrawals. As a result of the fallout, the company filed bankruptcy, and both FTX and Alameda faced criminal and civil charges.

Founder Sam Bankman-Fried resigned from the company and was later convicted on seven pre-extradition charges. The second trial in the matter is scheduled for March 2024. The FTX collapse was so intense that it affected other crypto services and triggered downsizing, leading to bankruptcy for lenders and banks.

The demise of FTX started a chain reaction, prompting the authorities to bring regulatory scrutiny and calls for greater oversight into the crypto industry.

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Anurag
Anurag
B.Sc. Multimedia, a journalist by profession.

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