Author: Xiao Sa lawyer
At the end of last month, CZ Changpeng (hereinafter referred to as "CZ"), the former actual controller of Binance, the world's largest cryptocurrency trading platform, accepted a record-breaking $4.3 billion settlement. He was then accused by prosecutors of using the Binance platform to condone money laundering and suspected of committing crimes (the main charges were "violating bank secrecy laws and multiple sanctions programs" and "failing to report suspicious transactions", etc.).
At present, the case has basically been settled - CZ was sentenced to four months in prison by the Seattle Federal Court for violating the US Anti-Money Laundering Act. It is reported that the judge in this case, Richard A. Jones, once said in court: "No matter how rich, powerful or high-ranking one is, no one has immunity from prosecution and cannot be above the law." So, today, the Sister Sa team will take this case as an example, starting from the relevant provisions of the US Anti-Money Laundering Law, and explain the anti-money laundering compliance obligations in detail for partners who want to work hard overseas and get a piece of the crypto pie in the US market.
01 The system and relevant regulations of the US anti-money laundering law
The US anti-money laundering law is mainly composed of three acts, namely the earliest "Narcotics Control Act" of 1956 , the "Organized Crime Control Act" of 1970 and the most widely used "Bank Secrecy Act" of 1970. After the 9.11 incident, the United States passed the famous "Patriot Act" ( Uniting and Strengthening A-merica by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism , hereinafter referred to as the " PATRIOT Act " ) in just 45 days . The PATRIOT Act amended and strengthened the provisions of the " Bank Secrecy Act " , directly expanded the anti-money laundering responsibility to all financial institutions, and detailed a series of anti-money laundering obligations of institutions , which are briefly described as follows:
1. Know Your Customer (KYC)
The Bank Secrecy Act requires financial institutions to establish a written customer identification system to confirm the identity of account opening customers and assess all relevant risk factors. When the true identity of a customer cannot be reasonably confirmed, the account opening application should be rejected or the transaction should be stopped, and the regulatory authorities should be reported.
2. Large-value and suspicious transaction reporting system
The threshold for the large transaction reporting system is generally $10,000. When currency or financial instruments are transferred (including but not limited to the transfer of any form of currency, financial instruments, etc. by land transportation, mail, shipping, etc.), the amount exceeding $10,000 needs to be reported to the General Administration of Customs, and foreign bank accounts need to be reported to the Ministry of Finance.
The suspicious transaction reporting system means that when a financial institution discovers that a transaction may be suspected of a crime or that an employee abuses his or her authority to engage in criminal activities, the financial institution shall submit a suspicious transaction report to the regulatory authorities:
It is worth mentioning that Section 317 of the PATRIOT Act formally established the United States' controversial "Long-Arm Jurisdiction over Foreign Money Launderers" in the field of anti-money laundering supervision. Section 317 clearly stipulates that the United States can exercise long-arm jurisdiction if one of the following conditions is met: (1) a financial transaction involved occurs in whole or in part within the United States; (2) the relevant foreigner or foreign financial institution converts the property that the U.S. court has decided to recover and confiscate for the purpose of misappropriation; (3) the relevant foreign financial institution has opened a bank account in a financial institution located in the United States. This is also the basis for the United States to exercise jurisdiction over Binance, which is registered abroad.
At the actual implementation level, the U.S. Treasury Department, the Securities and Exchange Commission (SEC), the Internal Revenue Service, the Federal Bureau of Investigation and other administrative departments are mainly responsible. They have established an anti-money laundering intelligence system with the Financial Crimes Enforcement Network (FinCEN) as the core. After verifying the relevant money laundering crimes, the Ministry of Justice is generally responsible for holding the suspects accountable.
02 CZ——The first person in history to go to jail for violating the Bank Secrecy Act?
The Sajie team noticed that according to information from public channels, during CZ's trial, his defense attorney and prosecutor made two interesting statements: Defense attorney Mark Bartlett: "There has never been a precedent in American history where someone has been sentenced to jail for violating the Bank Secrecy Act." Prosecutor: "If CZ does not have to go to jail for violating the Bank Secrecy Act, no one will go to jail for other similar crimes in the future, and the law will be ineffective. "
Ultimately, although the court determined that CZ's actions violated the relevant provisions of the Bank Secrecy Act and that he should bear criminal responsibility, it accepted his defense attorney's argument that "there is no evidence that CZ knew that specific transactions violated US regulations or sanctions" and ultimately sentenced him to four months in prison, rather than the three years advocated by the prosecution.
Regarding the issue of CZ's sentence, the Sister Sa team believes that this is mainly directly related to CZ's good attitude towards admitting guilt and accepting the sky-high settlement conditions and resigning from specific positions in Binance. During the trial, the prosecution repeatedly used CZ's famous saying: "It is better to ask for forgiveness than to apply for permission" to try to prove that CZ subjectively had intentional or indirect intention (knowingly letting it go) for Binance's violation of the US Bank Secrecy Act. Let's put aside the facts that can be proved by this statement for the time being. This statement has actually always been the core of CZ's business, that is, bold development and brave admission of mistakes. As long as I develop fast enough, I can use the increase in industry to cover the cost caused by violations. Under the guidance of this life creed, if we compare the attitude and situation of Sam Bankman-Fried (SBF), the former actual controller of FTX, with CZ, we can actually find out which is better (of course, it is also crucial that CZ's matter is not as big as SFB)
03 Warning to Crypto Industry Practitioners
In previous articles, the Sajie team said that in the past one or two years, the regulatory focus of crypto assets in major economically active regions of the world has been mainly on anti-money laundering and anti-terrorist financing, and a series of anti-money laundering rules have been adopted to reduce small and small-volume anonymous transactions to a smaller order of magnitude. In this way, the use of crypto assets for large-scale money laundering and dispersed money laundering will be more likely to be exposed to regulatory vision.
The Sajie team believes that the most important compliance obligation for partners in the global crypto market, industry, and community is to establish a firewall system that complies with the anti-money laundering regulatory standards of most economically active areas. Given the multi-centralized and cross-border transaction attributes of crypto assets, the traditional anti-money laundering compliance architecture design has gradually become unsuitable for crypto entities of the size of Binance. As of now, due to the complexity of laws in various countries, there is no low-cost and fast solution. For this situation, the Sajie team believes that it can be considered to solve it by establishing a strong legal compliance department on its own and cooperating with external lawyers in multiple jurisdictions. In short, if there is not enough confidence that the business can be incrementally covered by the illegal costs in a short period of time, in today's regulatory environment, the priority of "preventive treatment" should be higher than the priority of development, at least it should not be neglected.
04 Conclusion
If nothing unexpected happens, CZ is likely to become the richest person in federal prison. This also shows that the world's mainstream countries will gradually increase their supervision of the virtual asset field, and the space for using virtual assets for money laundering and terrorist financing activities will become smaller and smaller.
The dust settled on the CZ incident, which reminded the team of Sister Sa of two other recent hot topics: First, there are media rumors that Bitcoin spot ETFs may be included in the Shanghai-Hong Kong Stock Connect, and another rumor is that my country is likely to relax restrictions on virtual currency transactions, and virtual assets may be legalized in mainland my country. Judging from the general trend of virtual currency regulation alone, the second rumor is unlikely to come true. Judging from the current development trend of virtual assets worldwide, the premise for the legalization of virtual asset business and related transactions must be to establish a strict and complete virtual currency anti-money laundering and anti-terrorist financing system, and at the same time, virtual currency should be included in the regulatory framework of securities or other financial instruments. The construction and improvement of all these legal regulatory frameworks are not a matter of one day or one night. For this reason, the team of Sister Sa speculates that the current major policies and guidelines for virtual currencies in mainland my country will not change, and the red line risks drawn by the "9.24" notice will not change in the short term.
