Binance scandal won’t rock UAE but clarity is needed

• New blow to crypto industry
• Call for uniformity in UAE
• More caution likely

Industry experts have told AGBI that the UAE needs to address some of its own internal challenges if it is to realise its ambitions to become a global cyptocurrency player.

Former Binance CEO Changpeng Zhao’s guilty plea as part of a $4.3 billion settlement with US anti-money laundering authorities is unlikely to lead to major regulatory changes in the UAE, as the Gulf state’s cryptocurrency laws are already conservative.

But Dubai-based Anton Golub, founder and president of blockchain company SwissAssetDAO, suggests Emirati authorities may now adopt a more cautious stance.

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“The UAE has a very clear regulatory framework in both Abu Dhabi and Dubai that has been developed over many years – it has clear processes, procedures and guidelines and I don’t expect that to change because of the US actions towards the crypto industry,” Golub said.

On Wednesday, 46-year-old Zhao expressed remorse. “I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself,” Zhao said on social media.

His settlement, which will see Zhao personally pay $50 million, was described by prosecutors as one of the largest corporate penalties in US history.

‘Significant blow’

It is another blow to the crypto industry that has been affected by investigations and comes on the heels of the recent fraud conviction of FTX founder Sam Bankman-Fried.

Binance broke US anti-money laundering and sanctions laws and failed to report more than 100,000 suspicious transactions with organisations the US described as terrorist groups including Hamas, al Qaeda and the Islamic State of Iraq and Syria, authorities said.

The US Treasury Department said the platform was also used by ransomware attackers, money launderers and other criminals.

The guilty plea by Zhao “is a significant blow” to the crypto industry’s global reputation, believes Raymond Kisswany, a partner at the Dubai-based Davidson & Co Law Firm.

The UAE is home to many different free zones and financial centres, each with their own laws and regulations, and this “often becomes a maze for firms and investors attempting to work out how to navigate and adhere to the various rules and regulations,” Kisswany said, adding that there was a need for a uniformity.

“With crypto being inherently global in nature, the UAE can lead the path for international cooperation to regulate digital assets on an international level,” he said.

Revamp required

BSA, a law firm in Dubai, said the latest scandal involving the Binance founder underscored the need for crypto-related businesses to revamp their business models and become more vigilant against money laundering, terrorism financing and sanctions. 

“Crypto exchanges are now expected to change their overall business model to be more alert and more mindful,” said Rima Mrad, partner at BSA.

On a wider scale, Manuel Villegas, a digital assets analyst at Swiss wealth management group Julius Baer, believes events at Binance are unlikely to hinder the long-term development of the digital asset class.

Binance’s token, BNB, has seen its price slip since the news, and other digital assets have slipped as well, but the declines have been marginal, Julius Baer said.