What’s behind Binance’s rumored $4 billion settlement

The chess match between Binance and the Justice Department may be heading to an endgame. On Tuesday, Bloomberg reported that the parties are discussing a resolution that would see the company pay $4 billion to put an end to its long-running legal troubles with Uncle Sam.

The Bloomberg report is notable because it’s the first news of the Binance investigation in months, and comes half a year after industry insiders were certain the Justice Department was going to drop a legal bomb on the company to follow earlier lawsuits by the SEC and the CFTC. The story is also remarkable because, contrary to earlier reports, it suggests Binance might just come through this alive.

The Justice Department has been leaking like a sieve throughout the investigation, and earlier leaks suggested the consequences would be more dire. While $4 billion would amount to a staggering penalty—one of the biggest corporate fines in history—the Bloomberg report did not repeat earlier rumors that Changpeng Zhao would have to step down as CEO or even serve prison time as part of a settlement.

If the Justice Department is indeed easing up, the question is why. There are a few theories. One is that the agency has mishandled the investigation. One person familiar with the proceedings recently told me that the Binance file was initially handled by “main Justice,” which they described as a bureaucratic blob compared with the agency’s more specialized divisions. Now, even though those divisions—including prosecutors versed in sanctions law—have joined the party, the investigation may now amount to a sprawling mess that the agency just wants to be done with.

Another possibility is that the Justice Department has decided it would be a bad idea to blow Binance up altogether since doing so could cause a financial cataclysm in the crypto markets that spreads to other parts of finance. I’m skeptical of this. The Biden administration has made clear it would be delighted to see crypto wiped out altogether, while there is a loose consensus among economist types that a crypto meltdown would be unlikely to cause wider contagion.

A final explanation for why the Justice Department may be backing off slightly in its Binance investigation is that Zhao, the company’s CEO, has a few cards to play of his own. Even as the investigation has forced him to retreat from key markets—and to pull Binance staff out of the U.S. altogether—the company is still doing brisk business in Asia and offshore. Meanwhile, Zhao also has some leverage in the form of Binance’s ability to help track down bad guys using the platform. Even though the company has racked up a phone book’s worth of money laundering violations over the years, it has also helped law enforcement crack down on terrorists in places like Central Asia. All of this means that, if the Justice Department goes all out trying to nail the company to the wall, Zhao could simply walk away and let law enforcement try to figure who owns millions of Binance wallets.

Meanwhile, the recent thaw in Crypto Winter—which has seen the price of Bitcoin soar and trading volumes rise—has likely translated to more revenue for Binance (even as its overall market share has slipped) and more runway for Zhao to ride out the investigation. Hence the Justice Department may have finally concluded it makes sense to punish Binance severely rather than to try and kill it off altogether. All of this is mostly speculation, of course, but if you had to bet, it wouldn’t be crazy to predict that Binance and its CEO will survive the investigation—that’s what the markets appear to be doing right now in any case.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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