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Crypto and digital payment enterprises collectively incurred fines totaling $5.8 billion last year, surpassing penalties imposed on traditional financial institutions for the first time. The Financial Times reported that these fines were primarily related to deficiencies in customer verification processes, anti-money laundering (AML) controls, and violations of sanctions and other financial crime regulations.
A significant portion of this total came from the $4.3 billion penalty levied against the cryptocurrency exchange Binance, a move characterized as a substantial warning by U.S. prosecutors. The data analyzed by the Financial Times revealed that cryptocurrency and fintech companies faced higher fines for lax controls than the entire traditional financial system, which paid only $835 million in fines for similar violations—the lowest level in a decade.
Last year, U.S. prosecutors exposed how Binance, led by Changpeng Zhao, became a platform for various illicit actors worldwide, including international terrorists and organized crime. The platform allowed customers from sanctioned countries like Iran, Cuba, and Syria to access its services, with allegations that Binance turned a blind eye to entities like Hamas' Al-Qassam Brigades, Palestinian Islamic Jihad (PIJ), Al Qaeda, and ISIS utilizing the platform.
Experts note that the elevated fines in the crypto sector highlight broader issues within emerging financial segments rather than reflecting improved practices in traditional banks. Dennis Kelleher, CEO of Better Markets, stated that the prevalence of fraud and criminality in the crypto sector prompted regulators and prosecutors to allocate resources to halt egregious conduct and deter its escalation.
Data from compliance software provider Fenergo showed that fines for money laundering and financial crimes surged by over 30% to reach $6.6 billion, although still below the peak of $11.3 billion reported in 2015. The number of fines imposed on crypto and payments providers saw a substantial increase, with crypto firms facing 11 fines, compared to an average of fewer than two per year over the previous five years. Payments companies were subject to 27 fines, significantly exceeding their annual average from 2018 to 2022.
David Lewis, former FATF executive secretary, anticipates more fines in the crypto sector as many jurisdictions have yet to regulate crypto firms in line with global standards. He expressed concern about the lack of oversight and proper regulation as crypto-related risks continue to grow.
Andrew Barber, a partner at law firm Pinsent Masons, suggested that fines against crypto and payments companies could rise as governments introduce new regulatory frameworks. He emphasized the need for firms without historical regulatory oversight to adapt, foreseeing an escalation in the scrutiny of their AML controls.
Charles Kerrigan, a crypto specialist and partner at law firm CMS, predicted that fines might decrease in the future as cryptocurrencies are subject to more stringent controls. He noted law enforcement agencies openly discourage using cryptocurrencies for illicit activities, and the smaller global market cap of cryptocurrencies compared to traditional financial assets makes them less likely to significantly contribute to financial crime fines in the long term.
By fLEXI tEAM