Binance's CZ and the End of the 'Borderless' Crypto Company

Tuesday marks the end of an era. Binance's Changpeng Zhao stepped down and pleaded guilty to violating U.S. anti-money laundering requirements, despite the fact that Binance was never a U.S. exchange. With that, the myth of “borderless” crypto companies is truly over.

To be sure, this is not the first time that U.S. law enforcement nailed a crypto exchange that was not officially in the country. The same thing happened with FTX. But no company exemplified the “borderless” myth more than Binance, which will also pay a $4.3 billion dollar fine to settle an investigation from the U.S. Department of Justice.

Binance defied the boundaries of a traditional company. It served traders everywhere, eventually becoming the world’s largest cryptocurrency exchange, and yet for a long time no one seemed to know where it was located. The very idea of a headquarters was antithetical to Binance’s whole identity.

In 2018, I asked CZ where he was based. “People still have this really strong concept of where your company is, and where you are,” he told me at the time. “A company is a concept. An organization is a concept.” When I asked where he called home, he just said, “I don’t really have any answer to that. Earth?”

Binance made a point of not being based in the United States, outside of its much smaller U.S. entity, Binance.US. I can’t remember the last time CZ publicly appeared on American soil. But the company was clearly not exempt from U.S. law. The United States accused Binance of not having a proper anti-money laundering (AML) program, of operating an unlicensed money-transmitting business and of violating sanctions law, CoinDesk reported.

“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now it’s paying one of the largest corporate penalties in U.S. history,” Attorney General Merrick Garland said.

The U.S. Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC) have also taken enforcement actions against Binance. The overall theme of the allegations is that Binance had U.S. customers, told those customers how to avoid U.S. regulations and took steps to hide their activity from U.S. regulators.

Some in the crypto community criticize the long arm of U.S. law. Binance itself pushed back against the CFTC in a filing in a U.S. court, saying, “U.S. law governs domestically but does not control the world.”

U.S. law might disagree. In 2022, BitMEX founders pled guilty to violating U.S, anti-money laundering laws, even though BitMEX was based in the Seychelles. And then, of course, came FTX. FTX was based in Hong Kong and then moved to the Bahamas. Sam Bankman-Fried desperately wanted to make it in the United States, paying huge sums of money for celebrity endorsements and stadium naming rights, all while trying to woo politicians in Washington. In the end, FTX’s global operation never made it into the U.S., with the exception of the much smaller and less powerful FTX.US. Instead, Bankman-Fried ended up getting torn apart by U.S. prosecutors in a U.S. court.

The U.S. still has allure for crypto businesses. Despite the pull of dynamic regions such as Asia or the Middle East, it’s hard to avoid the U.S. Did an overseas exchange have U.S. users? Did it mislead U.S. investors? Or did the CEO have meetings in the United States?

“The burden for venue is not very high,” Samson Enzer, a former Manhattan federal prosecutor, told the Wall Street Journal last year. “The government would argue that if a single email went through New York, that would suffice.”

We probably will never see another company quite like Binance. Crypto itself might be borderless, but crypto companies may find it increasingly hard to operate outside of legal or geographical boundaries. In the early days of crypto, it seemed possible to launch a massive exchange that slipped through the grasp of any jurisdiction. Those days are gone.