Crypto Giant Binance Expects to Pay Penalties to Resolve U.S. Investigations

DOJ, CFTC have been probing world’s largest cryptocurrency exchange

Binance, the world’s largest cryptocurrency exchange, expects to pay monetary penalties to settle existing U.S. regulatory and law-enforcement investigations of its business, the firm’s chief strategy officer said in an interview.

Binance grew quickly and began as a business powered by software engineers unfamiliar with laws and rules written to address the risk of bribery and corruption, money laundering, and economic sanctions, Patrick Hillmann said. The company has been working to fill gaps in its early compliance efforts, he said, but still expects regulators will impose fines for past conduct.

The company is “working with regulators to figure out what are the remediations we have to go through now to make amends for that,” Mr. Hillmann said Wednesday. The outcome will be “likely a fine, could be more.…We just don’t know. That is for regulators to decide.”

Binance is one of several large exchanges facing investigations in the U.S. over its crypto offerings. The exchange, which doesn’t have a global headquarters, began its operations in 2017 in China. Its executive team, including founder and Chief Executive Changpeng Zhao, spent time in Japan after China banned crypto exchanges. Binance today isn’t available to U.S. traders, Mr. Hillmann said.

Regulatory threats have weighed on crypto prices in recent weeks, although prices of crypto stocks and currencies jumped in tandem on Wednesday.

The Justice Department has been investigating Binance over potential violations of U.S. anti-money-laundering law, according to people familiar with the matter. The Commodity Futures Trading Commission has been probing whether Binance offered cryptocurrency derivatives to U.S. clients without properly registering that activity with the CFTC, the people said.

Mr. Hillmann said he couldn’t estimate the size of fines or when Binance might reach a resolution with U.S. authorities but said the exchange is “highly confident and feeling really good about where those discussions are going.”

“It will be a good moment for our company because it allows us to put it behind us,” Mr. Hillmann said.

Mr. Hillmann said it was still a “very confusing time for us” to understand how U.S. regulators want to oversee the crypto market. The Securities and Exchange Commission has stepped up its own enforcement in recent months, cutting off access to products and services central to the digital-currency business.

Kraken, one of the biggest U.S. exchanges, agreed last week to pay $30 million in fines to the SEC to resolve a civil investigation over its staking investment program. Kraken, which didn’t admit or deny wrongdoing, agreed to stop offering staking to U.S. users. Staking allows investors to earn a yield by temporarily handing their crypto tokens over to either an intermediary or a cryptocurrency network.

The SEC has told Paxos Trust Co. that regulators plan to take enforcement action against Paxos over the issuance of BUSD, a stablecoin that carries Binance’s name, The Wall Street Journal reported this week. Paxos issues BUSD but licenses the usage of Binance’s moniker, which gives the coin the “B” in its name.

On Monday, New York regulators shut down new issuance of BUSD, which state regulators earlier had permitted to be issued and called a virtual currency. Paxos has said it disagrees with the SEC staff’s analysis of BUSD and plans to litigate if the federal agency sues the company for violating investor-protection laws.

Mr. Hillmann said the SEC’s most recent enforcement activity “would have a really deep and long-lasting chilling effect in the United States.”