Untangling the Mess in The Binance World

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The Blends Briefs
TL’DR: Here’s a sneak peek into today’s newsletter

• Untangling the Mess in The Binance World.

• The OpenAI Mess.

• Dictionomics: The Crypto Compliance Act

Global Biscuits

Untangling the Mess in The Binance World.

Binance is set to exit the U.S. market and pay a $4.3 billion settlement to resolve anti-money laundering (AML) and sanctions violations. This follows a years-long criminal investigation into the company and its leadership. Binance CEO Changpeng Zhao has stepped down and pleaded guilty to AML violations, agreeing to pay a separate $50 million fine. CZ announced that Richard Teng, the Global Head of Regional Markets, has been named the new CEO of Binance today. Richard was the CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market (ADGM); Chief Regulatory Officer of the Singapore Exchange (SGX); and Director of Corporate Finance at the Monetary Authority of Singapore.

The Wall Street Journal published a report indicating that CZ will plead guilty to "one criminal charge." The Justice Department's money laundering section asked Binance to voluntarily hand over messages from Zhao and 12 other executives and partners on matters including the exchange's detection of illegal transactions and recruitment of U.S. customers. It also sought any company records with instructions that "documents be destroyed, altered, or removed from Binance's files" or "transferred from the United States."

The December 2020 request, which has not been previously reported, was part of a Justice Department investigation into Binance's compliance with U.S. financial crime laws that remains ongoing, four people familiar with the inquiry said. U.S. authorities, the people said, are investigating whether Binance violated the Bank Secrecy Act (BSA). This is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. The BSA requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.

The law, designed to protect the U.S. financial system from illicit finance, provides for jail terms of up to 10 years. Reuters could not establish how Binance and Zhao responded to the request from the department's criminal division. Binance has "an industry-leading global security and compliance team" with over 500 employees, including former regulators and law enforcement agents, Binance Chief Communications Officer Patrick Hillmann said.

Binance and Zhao also allegedly violated compliance rules to attract U.S. users, CFTC alleges. The CFTC filed a complaint against crypto exchange Binance, its co-founder, Changpeng Zhao, and its former chief compliance officer, Samuel Lim, alleging that Binance actively solicited U.S. users and subverted the exchanges own “ineffective compliance program,” according to a filing in Illinois federal court Monday.

Beyond disgorgement and any monetary costs, the CFTC filing asked the court to impose further relief, including trading and registration bans. The regulator alleged that Binance, Zhao, and Lim violated eight core provisions of the Commodity Exchange Act, including laws that require controls “designed to prevent and detect money laundering and terrorism financing.”

The legal woes of Binance and CZ have cast a shadow over the crypto industry and raised questions about the future of the exchange. Binance has been facing regulatory scrutiny in several countries, including China, Japan, Germany, Singapore, and Canada. The exchange has said it is committed to complying with local laws and regulations wherever it operates.

The OpenAI Mess.

Sam Altman is set to return as the CEO of OpenAI after a boardroom coup saw his departure last week. OpenAI announced that an "agreement in principle" had been reached for Altman's return, with details being worked out collaboratively. Alongside Altman's return, OpenAI will appoint a new board with chair Bret Taylor, Larry Summers, and Adam D'Angelo. Greg Brockman, the co-founder who left in solidarity with Altman, will also return. The announcement follows a week of turmoil at OpenAI, where Altman's departure led to a staff revolt and investor concerns, prompting intense discussions for his reinstatement. Here’s our brief preview and explanation of the OpenAI messy situation.

The recent departure of Sam Altman as CEO of OpenAI, the Microsoft-backed artificial intelligence firm, has exposed the problems of the company's board governance and its impact on AI development. Altman, who was former president of Y Combinator, joined OpenAI in 2019 and led its transition from a non-profit to a hybrid structure that allowed it to raise capital while preserving its mission and governance. However, the board of directors of OpenAI announced that Altman was fired because he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities. The board also said that it no longer had confidence in its ability to continue leading OpenAI and appointed Mira Murati, the company's chief technology officer, as interim CEO. Murati has been with OpenAI for five years and has played a critical role in its research, product, and safety functions. She is also experienced in AI governance and policy and is expected to lead OpenAI during the transition period while the board conducts a formal search for a permanent successor.

Altman's firing comes at a time when OpenAI is facing increasing competition and scrutiny in the AI field. The company is known for its ambitious projects such as GPT-3, a powerful natural language processing system that can generate text on almost any topic, and DALL-E, a system that can create images from text descriptions. However, these systems also pose ethical and social challenges, such as potential misuse, bias, and safety issues. Moreover, OpenAI has been criticized for its lack of transparency and accountability, especially regarding its decision-making process and its relationship with Microsoft, which invested + $10 billion in OpenAI and has exclusive access to some of its technologies. Some critics have also questioned whether OpenAI is still aligned with its original vision of creating artificial general intelligence (AGI) that can benefit all humanity.

The future of OpenAI will depend largely on how it addresses these challenges and how it defines its role and goals in the AI landscape. The company has stated that it remains committed to serving its mission and preserving the principles of its Charter, which include ensuring that AGI is aligned with human values, avoiding creating or enabling AI systems that harm humanity, and cooperating with other actors to avoid conflicts. However, the company will also have to balance these ideals with the realities of the market and the expectations of its stakeholders. The new leadership will have to navigate these trade-offs and communicate them clearly and honestly to the public. Additionally, the new leadership will have to foster a culture of trust and collaboration within OpenAI and with other AI researchers and organizations. As one of the most influential players in the AI field, OpenAI has a responsibility to advance the state of the art while ensuring that its innovations are ethical, safe, and beneficial for society.

Dictionomics: The Crypto Compliance Act

The Crypto Compliance Act is a proposed legislation that aims to regulate the cryptocurrency industry in the United States. It would require crypto exchanges, such as Binance, to comply with various rules and standards, such as anti-money laundering, tax reporting, and consumer protection. The act would also create a new federal agency, the Crypto Regulatory Commission, to oversee and enforce the regulations. 

The Crypto Regulatory Commission would be composed of five members appointed by the President and confirmed by the Senate and would have the authority to issue licenses, impose fines, and revoke permissions for crypto-related activities. The act is expected to have a significant impact on Binance, as it would limit its access to the US market and potentially expose it to legal actions and penalties. Binance has already faced regulatory challenges in several countries, such as the UK, Japan, and Germany, due to its lack of compliance with local laws and authorities.

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