Binance was wrong in not complying with regulations, but the enforcement and consequences it faced highlight a double standard in the financial industry, where traditional institutions often engage in worse practices but face milder repercussions, and the effectiveness of such regulations in truly preventing illicit finance is questionable.

First of all, let me say that companies that don’t like certain laws should still comply with them while campaigning for change.

One interpretation of the government’s suit against Binance and the resulting mammoth settlement is that by refusing to implement compliance schemes like AML & CFT, the company failed to stop money laundering and the financing of terrorism.

Omid Malekan is an adjunct professor at Columbia Business School where he lectures on blockchain and crypto | Provided Photo

The problem with this interpretation is that vast sums of illicit flows still move through the companies who do comply. Banks, brokers and other types of (mostly non-crypto) intermediaries are the preferred route for tax and sanctions evaders, to the tune of over a trillion dollars a year.

A more accurate interpretation is that Binance refused to participate in the pretense of stopping illicit finance. They didn’t kick out the occasional bad actor or file endless suspicious activity reports. In other words, they didn’t play the game, didn’t pay their annual tithe to the AML-Industrial Complex (a cushy landing spot for ex officials) and didn’t kiss the ring, as it were.

You could see the Kabuki aspect of all this in the joint press conference held by various Important Government Officials earlier this month. If you didn’t know the context and watched the whole thing on mute you’d think the Feds just brought down a major drug cartel or rounded up the remnants of ISIS, as opposed to finally extracting their pound of flesh from the preferred trading venue for Dogecoin. 

This settlement was apparently so important that it warranted an appearance by the Secretary of the Treasury (but not important enough for her to know how to pronounce the company’s name).

Also telling: most of the Tough Talk from the People in Suits was about the procedures Binance refused to follow, and notably NOT about the terrorism that Binance enabled. 

The same goes for the unsealed settlement docs, full of shocking (not really) revelations like the time some dude in Washington traded $1,400 worth of some coin with some dude in Iran. This from the same administration that released $10b to the Iranian government just a few weeks ago.

People who sincerely believe that crypto is some unique enabler of bad people doing bad things must not understand how the rest of the financial system actually works. 

One of the biggest banks in America still operates a division in Russia, and many of the world’s worst tyrants use America as their piggy bank. But that’s all considered OK because somebody did the paperwork.

Binance was wrong to lie to its customers and wrong for not being compliant. But that doesn’t mean it’s a bad company. Spend five minutes googling “banks facilitating money laundering” and you’ll find that financial firms with household names have been caught doing far worse things involving orders of magnitude more money, yet suffered much milder consequences.

If they’d been held to the ‘Binance Standard’ there’d be hundreds of managing directors in jail and less money for shareholder buybacks (or lobbying). But the bankers were smart enough to never question the game.

Unlike FTX—a company whose psychopathic leader was beloved by half the people in that press conference not that long ago—Binance didn’t abscond with user money. 

It did a reasonably decent job of onboarding tens of millions of poor, brown, and otherwise underprivileged people into the financial system, something the world’s compliant financial firms have chronically failed to do (which is OK—it’s not considered redlining when the AML department holds the pen).

Binance's net contribution to a more inclusive financial system is something to be commended. What remains to be seen is if firms like that can keep serving underserved populations now that they too have agreed to play the game, and do the paperwork.

Omid Malekan is an adjunct professor at Columbia Business School where he lectures on blockchain and crypto. You can find him online at OmidMalekan.com.