November 21st marked the end of an era. Binance CEO Changpeng Zhao has resigned, admitting that he violated US anti-money laundering requirements even though Binance was not an American exchange. With this, the myth of “borderless” crypto assets (virtual currency) companies has truly come to an end.

The concept of location

To be sure, this is not the first time that American law enforcement has raided a cryptocurrency exchange that does not have a presence in the United States. So was FTX. But no company embodies the “borderless” myth quite like Binance. Binance will also pay a $4.3 billion (approximately 645 billion yen, equivalent to 150 yen to the dollar) fine to settle with the U.S. Department of Justice.

Binance has broken the boundaries of traditional companies. Serving traders everywhere around the world, it eventually became the world’s largest crypto exchange. But for a long time, no one knew its location. The very idea of ​​having a headquarters went against Binance’s identity.

In 2018, I asked Mr. Zhao, also known as “CZ”, where his company is based. “People still have really strong notions of where the company is and where they are,” he told me at the time. “A company is a concept. An organization is also a concept.”

When asked where he is home, he replied, “I don’t have an answer to that. Earth?”

Binance emphasized that it has no presence in the United States, other than its much smaller U.S. corporation, Binance US. I can’t remember the last time the CZ made an official appearance in America. However, Binance clearly could not escape the application of American law.

The US had accused Binance of not having an adequate anti-money laundering (AML) program, operating an unlicensed money transfer business, and violating sanctions laws.

“Binance became the world’s largest crypto exchange in part because of the crimes it committed, and now it has paid the largest fine for a company in American history,” Merrick said. Attorney General Merrick Garland said:

The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) also took enforcement action against Binance. Their allegation is that Binance had customers in the United States, told those customers how to circumvent American regulations, and took steps to hide its activities from American regulators.

American law reaches far

Some in the crypto community criticize the far-reaching influence of the U.S. law. Binance itself has objected to the CFTC in a filing with a U.S. court, saying, “American law governs the United States, but not the world.”

American law may disagree with that. In 2022, BitMEX’s founders pleaded guilty to violating US anti-money laundering laws, even though the company was based in the Seychelles.

And, of course, FTX. FTX was based in Hong Kong and later relocated to the Bahamas. Desperate to make it in America, Sam Bankman-Fried paid millions for celebrity endorsements, stadium naming rights, and courted politicians in Washington.

In the end, none of FTX’s global operations made it to the United States, except for the much smaller and weaker FTX.US. Instead, Bankman-Fried will be pursued by American prosecutors in American courts.

America remains attractive for crypto companies. Despite dynamic regions like Asia and the Middle East, it is difficult to avoid the United States. Did overseas exchanges have American users? Did they deceive American investors? Was the CEO having a meeting in America?

Former Manhattan federal prosecutor Samson Enzer told the Wall Street Journal last year:

“Proving jurisdiction is not that difficult. The government will argue that just one email going through New York is enough.”

There will probably never be another company like Binance. Cryptocurrency itself may be borderless, but crypto companies are likely to find it increasingly difficult to operate outside legal and geographic boundaries. In the early days of crypto assets, it seemed possible to launch a giant exchange that could bypass any jurisdiction. But those days are over.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: salarko / Shutterstock.com
｜Original text: Binance’s CZ and the End of the ‘Borderless’ Crypto Company