Law and Order: Crypto – POLITICO

PROGRAMMING NOTE: We’ll be off for Thanksgiving this Thursday and Friday but back to our normal schedule on Monday, Nov. 27.

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The $4.4 billion Binance settlement — an historic deal struck to resolve sweeping financial crime charges against the world’s largest digital currency exchange — underscores the huge challenge crypto firms face in their quest for legitimacy.

As Washington scrutiny of crypto crime ramps up, the industry is increasingly flexing a not-so secret weapon: a small army of former defense, national security and law enforcement officials.

Coinbase, the largest U.S. crypto exchange, announced this month that former Defense Secretary Mark Esper and other national security experts had joined its “global advisory council,” which also includes Bush counterterrorism adviser Frances Townsend. The Blockchain Association last week sent to Capitol Hill a letter signed by 40 former military officials, ex-intelligence officers and nat sec professionals, including alumni of Treasury, the White House and DHS. They downplayed illicit activity in crypto relative to traditional finance and argued against policies that would drive digital asset players overseas — a frequent industry talking point. The group is planning a Hill visit next Tuesday.

The ties between crypto and law enforcement aren’t new, and it’s something that’s also prevalent across the old-school banking sector. But the crypto industry is showcasing its relationships with former officials at a critical moment as lawmakers and the Biden administration focus on the role digital currency has played in financing Hamas and other terrorist organizations. Sen. Elizabeth Warren, an outspoken crypto critic, has run with the issue, rallying more than 100 lawmakers last month to ask the White House and Treasury to crack down.

Crypto’s recruitment of the former officials is triggering its own scrutiny from industry watchdogs. Henry Burke of the Revolving Door Project told MM that the problems presented by anti-terror officials taking posts with crypto firms are three-fold: They know the weaknesses of law enforcement, they legitimize the industry to their ex-coworkers and their moves incentivize those looking for post-government work to take a softer touch.

“This is of even greater concern when the situation is reversed and former cryptocurrency executives fill government posts,” Burke said.

Sen. Warren weighed in on the industry hiring ex-officials, telling MM: “Lawmakers should reject this influence-peddling and focus on keeping the American people safe by passing bipartisan, anti-money laundering legislation.”

Industry representatives pushed back hard against the criticism that former officials would help companies skirt the law. True Ventures partner and former DHS acting general counsel Gus Coldebella, who signed the Blockchain Association letter, said the suggestion is “scurrilous and wrong.”

“Former law enforcement and other government officials play a critical role across the private sector in helping companies comply with their legal obligations,” said one-time FinCEN chief digital currency adviser Michele Korver, who is now head of regulatory affairs at Andreessen Horowitz’s a16z crypto. “It is a critical element to ensure responsible innovation in the web3 space.”

While some crypto advocates are flaunting their law enforcement bona fides, others are calling into question the fundamental framework for policing financial crime in the U.S. The think tank Coin Center last week released a report raising doubts about the constitutionality of the Bank Secrecy Act, which gave officials the authority to combat money laundering.

“There is no tension here,” Coin Center spokesperson Neeraj Agrawal said, when MM asked about a possible disconnect with the industry’s recruitment of the former officials. “We support strong national security but it has to be constitutional, otherwise what are we defending?”

Happy Thanksgiving — MM will be back Monday. What should we cover next week? Send tips to [email protected] and [email protected].

Binance enabled ‘terrorists, cybercriminals and child abusers’ — The world’s largest crypto exchange will pay $4.4 billion and be booted out of the U.S. per the terms of a long-awaited settlement the government revealed Tuesday, our Declan Harty and Sam Sutton report..

What you need to know:

— Prosecutors alleged that Binance aided terrorist groups including Hamas, violated Iran sanctions and facilitated human and narcotics trafficking.

— “Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” said Treasury Secretary Janet Yellen, who appeared with Attorney General Merrick Garland and other officials announcing the settlement.

— Binance CEO Changpeng Zhao will plead guilty to money laundering charges, step down from the company and pay $200 million in penalties. Richard Teng, formerly of Singapore’s central bank, is the company’s new CEO.

— Binance will be overseen by a monitor, a first for the crypto industry, and undertake new compliance efforts to ensure that it exits the U.S. It’s unclear what the deal means for Binance.US, a separate exchange that is owned by Zhao and registered with the federal government.

— It’s bigger than Binance. “We are also sending a message to the virtual currency industry more broadly, today and for the future,” Yellen said.

FDIC preps internal review — FDIC board member Jonathan McKernan and Acting Comptroller of the Currency Michael Hsu will lead a special committee tasked with overseeing an investigation into improper conduct at the agency, Victoria Guida reports.

The move creates some distance between the review and FDIC Chair Martin Gruenberg, who is facing calls to resign. Gruenberg said he will “play no role in overseeing the review.”

Vice Chair Travis Hill, previously a top aide to former FDIC Chair Jelena McWilliams, will not be part of the committee, nor will CFPB Director Rohit Chopra.

FDIC board members said in a joint statement that McKernan and Hsu may appoint up to three people to the committee. They will likely come from outside the agency.

Game-time ads target Marshall, credit card bill — The Electronic Payments Coalition, which represents banks and credit unions, will run ads during football games this week to rally opposition against bipartisan legislation that would crack down on credit card fees.

The group plans to focus on Sen. Roger Marshall, the bill’s lead Republican, in a Kansas-specific ad that will run during a Thanksgiving NFL game. It’s already up online. Another ad will air during college football games Friday and Saturday.

Marshall chief of staff Brent Robertson responded: “Whichever low-rent D.C. grifter created this garbage ad clearly did not follow Visa-Mastercard’s DEI protocols in advertising. Somebody needs to call their HQ in San Francisco and file a complaint.”

Fed tea leaves — The minutes of the FOMC’s most recent meeting suggest that officials “might be comfortable holding rates steady for at least the rest of the year,” the WSJ reports.

ECB President Christine Lagarde said it’s too early to start declaring victory in the fight against inflation, according to the FT.

Guess who might pay for what insurers won’t — Per Bloomberg, the Bank for International Settlements is warning that governments are increasingly at risk of having to foot the bill as insurers pull out of markets ravaged by climate change.