Finance

Cautious investors piling into cash may want to consider other options.
According to SPDR Exchange Traded Funds’ Matthew Bartolini, active management can also provide them with stability and income while creating more opportunities for upside.

“Active fixed income has been really a consistent engine of support within the active [ETF] construct — not only from flows but also returns,” the firm’s managing director and research head told CNBC’s “ETF Edge” this week.
Bartolini contends that not only do they give investors more flexibility, the strategies also provide consistent performance and improved tax efficiencies.
He also believes the forward-looking returns are looking better than they have in the past.
“But with higher returns comes higher volatility,” added Bartolini, who sees big benefits from active management. “The thing we keep going back to with investors [is] about creating portfolios that can generate income returns while maximizing the amount of risk they are taking to get those because yields are high.”
Bartolini warns cash carries its own set of risks.

“On the cash portion of the market, that income is not going to be as stable as it once was because of reinvestment risk,” he said.

‘Very hard to get people to think about bonds’

Dan Egan, vice president of behavioral finance and investing at robo-advisor Betterment, said it’s “very, very difficult” to pull investors out of cash.
“It’s very hard to get people to think about bonds when you can get that risk-free,” he said. “Don’t forget that FDIC insurance plays a very big role in people’s sense of safety.”
Betterment’s website as of Friday shows its variable high-yield cash account pays 4.75% APY. It’s also giving new customers a promotional rate of 5.50% for three months.
Disclaimer More

Chinese electric car company BYD said Friday that it launched its flagship Han sedan in the United Arab Emirates this week.
The news reflects another push by Chinese businesses into the Middle East, while geopolitical tensions have made it more difficult for the companies to enter the U.S. or expand in Europe.
The company launched the Han sedan in China 2020.

BYD’s Han electric car, pictured here at the 2021 Shanghai auto show, is one of the most popular new energy vehicles in China.
Evelyn Cheng | CNBC

BEIJING — Chinese electric car company BYD said Friday that it launched its flagship Han sedan in the United Arab Emirates this week.
It wasn’t immediately clear when deliveries would begin. BYD’s local website showed the company is also offering its ATTO 3 for sale in the UAE.

The news reflects another push by Chinese businesses into the Middle East, while geopolitical tensions have made it more difficult for the companies to enter the U.S. or expand in Europe. Middle Eastern countries such as Saudi Arabia have multi-year plans to reduce dependence on fossil fuels.
In June, Chinese electric car startup Nio announced it received $738.5 million from a fund owned by the Abu Dhabi government.
BYD said it opened a showroom in Dubai Festival City as part of a collaboration with Al-Futtaim Electric Mobility Company.
In March, a press release said Al-Futtaim would represent BYD in the UAE, the first country in the Middle East to have BYD cars on the road.
The release had laid out plans to launch four car models — fully electric and hybrid — in the market by the end of the year.

Read more about electric vehicles, batteries and chips from CNBC Pro

BYD has grown rapidly in China’s domestic auto market and has gradually expanded its passenger car business overseas.
The company launched the Han sedan in China 2020.
The car, which comes in hybrid and pure electric versions powered by BYD’s “blade battery,” jumped into the top 10 best-selling new energy vehicles in China in 2020, according to data from China’s Passenger Car Association out late Tuesday. The new energy category includes electric and plug-in hybrid power sources. More

November brings with it the beginning of the end of the year. The first frost signals winter has arrived. Thanksgiving marks the start of the holiday season. And from the hallowed halls of every large investment bank come pages and pages of “outlook” research. Their arrival means this year’s economic story is mostly written. Next year is what matters now.image: The EconomistOften an investor thumbing through all these will experience a sense of déjà vu. With all the vanity of small differences, researchers will elaborate on why their forecast for growth or inflation deviates by perhaps 30 or 40 hundredths of a percentage point from the “consensus” of their peers. (Your correspondent once penned such outlooks herself.)Yet this year’s crop did not deliver soporific sameness. Goldman Sachs expects growth in America to be robust, at 2.1%, around double the level that economists at ubs foresee. Some banks see inflation falling by half in 2024. Others think it will remain sticky, only dropping to around 3%, still well above the Federal Reserve’s target. Expectations for what the Fed will end up doing with interest rates range, accordingly, from basically nothing to 2.75 percentage points of rate cuts.The differences between these scenarios come down to more than simple disagreement over growth prospects. Economists at Goldman might think growth and inflation will stay hot whereas those at ubs think both will slow down sharply. But Bank of America expects comparative stagflation, combining only a modest reduction in inflation with a pretty sharp drop in growth (and therefore little movement in the Fed’s policy rates). Morgan Stanley expects the opposite: a version of the “immaculate disinflation” world in which inflation can come back to target without growth dropping below trend much at all.That each of the outcomes bank economists describe feels eminently plausible is a testament to the sheer level of uncertainty out there. Almost everyone has been surprised in turn by how hot inflation was, the speed of rate rises required to quell it and then the resilience of the economy. It is as if being repeatedly wrongfooted has given economic soothsayers more freedom: if nobody knows what will happen, you might as well say what you really think.The result is a bewildering array of analogies. Economists at Deutsche Bank think the economy is heading back to the 1970s, with central bankers playing whack-a-mole with inflation. Those at ubs expect a “’90s redux”—a slowdown in growth as rates bite, followed by a boom as new technology drives productivity gains. Jan Hatzius of Goldman thinks comparisons with decades past are “too simple” and may lead investors astray.There is one similarity in the stories economists are telling, however. Many seem to think the worst is over. “The last mile” was the title of Morgan Stanley’s outlook document; “The hard part is over,” echoed Goldman. They might hope that this applies to both the economy and the difficulty of forecasting. In 2024 the contradictions in America’s economy should resolve themselves. Perhaps in 2025 there will be consensus once more. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Obese people experience discrimination in many parts of their lives, and the workplace is no exception. Studies have long shown that obese workers, defined as those with a body-mass index (BMI) of 30 or more, earn significantly less than their slimmer counterparts. In America, several state and local governments are contemplating laws against this treatment. On November 22nd, one such ban came into force in New York City.Yet the costs of weight discrimination may be even greater than previously thought. “The overwhelming evidence,” wrote the Institute for Employment Studies, a British think-tank, in a recent report, “is that it is only women living with obesity who experience the obesity wage penalty.” They were expressing a view that is widely aired in academic papers. To test it, The Economist has analysed data concerning 23,000 workers from the American Time Use Survey, conducted by the Bureau of Labour Statistics. Our number-crunching suggests that, in fact, being obese hurts the earnings of both women and men.image: The EconomistThe data we analysed cover men and women aged between 25 and 54 and in full-time employment. At an aggregate level, it is true that men’s BMIs are unrelated to their wages. But that changes for men with university degrees. For them, obesity is associated with a wage penalty of nearly 8%, even after accounting for the separate effects of age, race, graduate education and marital status. When we re-ran our analysis, using a different dataset that covers nearly 90,000 people, from the Department of Health and Human Services, we got similar results.The conclusion—that well-educated workers in particular are penalised for their weight—holds for both sexes (see chart 1). Moreover, the higher your level of education, the greater the penalty. We found that obese men with a bachelor’s degree earn 5% less than their thinner colleagues, while those with a graduate degree earn 14% less. Obese women, it is true, still have it worse: for them, the equivalent figures are 12% and 19%, respectively.image: The EconomistYour line of work makes a difference, too (see chart 2). When we crunched the numbers for individual occupations and industries, we found the greatest disparities in high-skilled jobs. Obese workers in health care, for example, make 11% less than their slimmer colleagues; those in management roles make roughly 9% less, on average. In sectors such as construction and agriculture, meanwhile, obesity is actually associated with higher wages.These results suggest that the aggregate costs of wage discrimination borne by overweight workers in America are hefty. Suppose you assume that obese women, but not men, face a wage penalty of 7% (the average across all such women in our sample) and that this is the same regardless of their level of education. Then a back-of-the-envelope calculation suggests that they bear a total cost of some $30bn a year. But if you account for both the discrimination faced by men, and for the higher wage penalty experienced by the more educated (who also tend to earn more), the total cost to this enlarged group more than doubles, to $70bn per year.What can be done? Several cities, such as San Francisco and Washington, DC, already ban discrimination on the basis of appearance. A handful of states—including Massachusetts, New York, New Jersey and Vermont—are considering similar bills. The ban New York City began to enforce on November 22nd prohibits weight-based discrimination in employment, housing and public accommodation such as hotels and restaurants. Alas, it is unlikely to accomplish much. When we restricted our analysis to workers in Michigan, where a similar ban has been in place for nearly 50 years, we found the obesity wage penalty to be no lower than for America as a whole. Outlawing prejudice is one thing. Ironing it out of society is quite another. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

EARLIER THIS year a Chinese publisher released a translation of “In Defence of Public Debt”, a book by Barry Eichengreen of the University of California, Berkeley, and several others. Reaching deep into history, the book seeks to restore balance to the debate on government borrowing by emphasising its neglected benefits. Mr Eichengreen argues that indebted countries can get into trouble when they turn to fiscal restraint too soon, neglect growth or succumb to deflation, which only makes debt harder to service. The arrival of the translated edition was timely. Many economists believe the Chinese government’s fiscal caution this year has contributed to disappointing growth and the danger of falling prices.Thankfully, China’s government has now begun to loosen the purse strings. It has taken the rare step of revising its budget-deficit target from 3% of GDP to 3.8%. It has allowed provinces to issue “refinancing bonds”, which will help them repay some of the more expensive debt owed by affiliated infrastructure firms known as local-government financing vehicles. Financial regulators have urged banks to meet the “reasonable” financing needs of the less rickety property developers, without discriminating against private ones. Officials also talk more often about “three major projects”: affordable housing; leisure facilities that can also help China cope with disasters and emergencies; and efforts to renovate “urban villages”, or formerly rural enclaves.But these steps by themselves will not be enough. Houze Song of MacroPolo, a think-tank, worries that the “stimulus is not big enough to reflate the economy”. The government seems to fear an excessive response more than it fears an inadequate one. Many in China view public debt as suspect despite the arguments in its favour. Even defenders of public borrowing are careful not to appear too strident. The Chinese edition of Mr Eichengreen’s book is not called “In Defence of Public Debt”. It carries the more anodyne title “Global Public Debt: Experience, Crisis, Response”.What explains the government’s fiscal reticence? It may be ideology. But it may also be recent history. Fifteen years ago this month, China’s government announced a fiscal stimulus worth about 4trn yuan (or $590bn) in response to the global financial crisis. Financial regulators also gave their blessing to local governments to sidestep restrictions on their borrowing by setting up financing vehicles that could issue bonds and borrow from banks. Local governments responded with “frenzied enthusiasm”, as Christine Wong of the University of Melbourne put it. With the extra borrowing, the initial 4trn yuan ballooned into 9.5trn yuan (or 27% of 2009 GDP) spread over 27 months.The frenzy successfully revived growth. But in the years since, stimulus has acquired a stigma in China. Chinese officials have repeatedly warned of the dangers of a similar “flood-like” response to economic slowdowns. The lending spree has been accused of privileging state-owned enterprises, crowding out manufacturing investment, and impeding spending on industrial R&D.Drawing on confidential loan data from 19 banks, Lin William Cong, now of Cornell University, and co-authors have shown that the increased supply of credit in 2009 and 2010 favoured state-owned enterprises over private firms. And among private firms, it favoured those making less productive use of their capital. The authors guess that in a crisis, banks prefer to lend to companies that enjoy the backing of local governments, whether they be state-owned enterprises or well connected but inefficient private firms. Jianyong Fan of Fudan University and co-authors argue that spending on R&D by industrial firms was squeezed by higher capital costs in parts of the country where local governments borrowed most heavily. These localities were often led by newly promoted party secretaries who were eager to shine.It is easy to read these studies and conclude that the 2008 stimulus was a mistake. But the flaws of that response do not mean that it was worse than nothing. The paper by Mr Cong, for example, does not show that the increased supply of credit hurt borrowing by private firms, merely that it benefited them less than it helped state-owned firms. The study of R&D by Mr Fan and his colleagues also controls for each locality’s growth rate. That means that if the stimulus boosted growth, and growth boosted R&D, this beneficial effect will be stripped out of their results.Since the stimulus amounted to a “flood” of lending and investment, it would be surprising if private firms were parched of credit. Indeed, lending to them grew briskly in 2009 and 2010, show figures compiled by Nicholas Lardy of the Peterson Institute for International Economics, a think-tank. Investment by private manufacturers was also strong. Instead stimulus spending crowded out China’s accumulation of foreign assets, including the American Treasury bonds bought by its central bank, argues Zheng Song of the Chinese University of Hong Kong, co-author of another influential paper on China’s fiscal expansion.Stimulus checkLooser financial limits on local governments nonetheless cast a “long shadow”, as Mr Song’s paper put it. Their financing vehicles continued to borrow long after the crisis. Some of the debts these vehicles have accumulated now look impossible for local governments to repay, adding to the gloom hanging over China’s economy. Like many economists, Mr Song believes the next stimulus should adopt different fiscal machinery, providing handouts to households. Mainland China could, for example, copy the electronic consumption vouchers distributed in Hong Kong, which are forfeited if they are not spent within a few months.Fifteen years on, the side-effects of China’s 2008 lending spree are an argument for better stimulus, not zero stimulus. Public borrowing to rescue an economy can leave a difficult financial legacy, as Mr Eichengreen’s book points out. But that is different from saying that “not borrowing would have been better”. ■Read more from Free exchange, our column on economics:The false promise of green jobs (Oct 14th)In praise of America’s car addiction (Nov 9th)The Middle East’s economy is caught in the crossfire (Nov 2nd)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

In a distant and forgotten era, around eight months ago, tremors were rippling through the global banking system. Three mid-sized American lenders collapsed in a week. In Europe the venerable Credit Suisse almost went under, before being bought by its rival, UBS. The scramble to merge them threw a cloud over an entire class of bank debt, $1trn of which has been issued over the past decade.AT1 bonds were supposed to make banks safer after the financial crisis of 2007-09. In good times, they work like normal bonds. But if the issuing bank’s capital falls far enough, some (dubbed contingent convertible notes, or “CoCos”) convert to equity. Some others are written off. AT1s are usually described as being senior to shares and junior to bonds in a liquidation. But when Credit Suisse fell apart, AT1 bondholders were wiped out before shareholders.The CoCo crowd howled, even as regulators insisted they were following the bonds’ contracts.  It looked as if the entire asset class might be done for, with investors everywhere poring over fine print to see how they would be treated in a similar scenario. AT1 yields rocketed.Yet today the market for AT1s is not just alive, but thriving. By November 20th the month was already the third-strongest for issuance over the past two years, according to Dealogic, a data provider. Mitsubishi UFJ sold $750m in dollar-denominated AT1s in October. This month both Barclays and Société Générale have issued their own. Even UBS recently sold $3.5bn in AT1s—under the same Swiss regulatory regime that annihilated those of Credit Suisse.An unkind columnist might wonder if all this is because investors have the recall capacity of goldfish. Amnesia is certainly tempting when such tasty returns are on offer. Euro-denominated AT1 bonds currently offer yields of around 9.6%, up from a nadir of 2.8% in late 2021. Feeling the warm glow, many seem keen to put their hands to the hot stove again.The more charitable view is that investors have decided the Swiss blow-up was idiosyncratic. Regulators elsewhere in the world rushed to insist that their banks’ AT1s would never be subordinated to shares. And the market seems to be functioning well despite its springtime panic. The vast majority of AT1s facing call dates—when banks can, but do not have to, redeem and repay the bond—have been repaid. That indicates good financial health, and an ability to issue more bonds. According to GAM Investments, an asset manager, 92% of AT1 bonds with a call date in 2023 have been redeemed, barely down from the long-run rate of 94%.The phoenix-like recovery of the AT1 market also says something about the state of financial markets more broadly. On both corporate bonds and stocks, the compensation on offer for exposure to losses is miserable. For American shares, the equity-risk premium—a measure of the excess expected return for buying risky stocks instead of “safe” government bonds—has slumped to its lowest level in decades. That does not mean that stocks will fail to beat bonds in the long run. But it does mean that the earnings that analysts currently expect offer paltry yields in return for risk.Something similar is true in the credit market. Corporate debt currently offers measly returns in exchange for the risk of default. In both the investment-grade and junk-rated markets, spreads—the extra yield investors receive above those of Treasury bonds—are below the average level over the past ten years. As recently as the beginning of 2022, American junk bonds offered marginally higher yields than dollar-denominated AT1 bonds. But today, at 10.1%, the yield on a dollar AT1 is 1.6 percentage points above the yield on the equivalent junk debt.Banks have sold $51.3bn-worth of AT1 bonds so far in 2023. If they issue another $3bn before the year is out, that will beat the total issuance figure for 2022, despite the seizure the market suffered in March. If the rewards for taking risk in other asset classes were less stingy, it is difficult to imagine that demand for AT1 bonds would have recovered so rapidly. It might not have recovered at all.The next year will be a pivotal one for the market. Around $30bn of AT1 bonds face their first call dates in 2024. But if surprisingly low corporate-bond spreads and an eye-wateringly expensive stockmarket persist, the instruments are likely to remain in demand among investors searching for returns. A sober assessment of how AT1 bonds would fare in another bank collapse may have to wait until the alternatives look a little less dispiriting. ■Read more from Buttonwood, our columnist on financial markets: Ray Dalio is a monster, suggests a new book. Is it fair? (Nov 16th)Forget the S&P 500. Pay attention to the S&P 493 (Nov 8th)What a third world war would mean for investors (Oct 30th)Also: How the Buttonwood column got its name More

Mission accomplished? Rich countries have at last met a promise to provide $100bn a year of climate finance to poorer ones, according to estimates for 2022 from the OECD, a club of mostly rich countries. That is two years late: the amount was originally pledged in 2009, when it was supposed to arrive by 2020. It is also not a sure thing. The OECD‘s figures are preliminary and may be revised.Still, the estimates may ease tensions between rich countries and poor ones ahead of COP28, this year’s UN climate summit in Dubai, which begins on November 30th. The missed pledge had become a symbol of rich-world hypocrisy: urging poor countries to forgo fossil fuels without providing the finance to help them achieve that, or to help them adapt to the warmer planet brought about by its own coal-and-oil-fuelled development. An indication, however tentative, that rich countries have at last met the goal is better than none.Developing countries will take a “trust but verify” approach, reckons Joe Thwaites of National Resources Defence Council, an environmental pressure group. The estimates are based on OECD projections published at the Glasgow climate summit in 2021. Since then, the spending data from multilateral development banks (MDBs) and governments have been at the top end of those forecasts. And so the OECD judges it likely that the $100bn pledge has been met. “I doubt they would say that without feeling really confident,” says Mr Thwaites.image: The EconomistEven so, any self-congratulation by rich countries will be poorly received. As well as being late, much of the money has come in the form of loans from MDBs that poor countries must pay back, and that will take priority in any debt restructuring. Poor countries will argue at this year’s COP that borrowing to fund climate investments will make their debt burdens less sustainable, as they already struggle with high food and energy prices and a strong dollar. At the Africa Climate Summit, where African nations hashed out a common position ahead of COP, they called for a “comprehensive and systemic response to the incipient debt crisis”, beyond the existing system of dealing with national defaults.Nor do the rich countries appear to have done well at “unlocking” private finance, which they have often promised to do. Estimates of the amount of external finance that countries in the global south will need to adapt to climate change tend to be in the trillions of dollars. Stretched finance ministries in the global north suggest that they will use scarce aid money to “crowd in” private finance rather than provide everything themselves. The OECD, however, found that the amount of private-sector funding mobilised by such wheezes amounted to just $14bn in 2021.Rich countries will hope to avoid fraught arguments over money in Dubai. A deal over climate pledges agreed by America and China last week has raised hopes of a breakthrough. A similar bargain between the world’s two largest polluters preceded the Paris climate agreement in 2015. Last year’s COP was dominated by negotiations over “loss and damage”, or funding to compensate poor countries for the impact of climate change rather than help them mitigate or adapt to it. The conference thus failed to produce any commitment to a more ambitious reduction of the pace of global warming. Ahead of this year’s COP, the EU has said it will make a “substantial” contribution to a loss and damage fund, while John Kerry, America’s climate negotiator, has said the country will pledge “millions”. That, along with rich countries having finally met their $100bn pledge, could take the heat out of arguments.Yet now rich countries must agree on a new pledge by 2025, since the framework they are currently following expires then. Technical discussions have so far been “rudderless”, says Michai Robertson of the Alliance of Small Island States, a group of countries that are vulnerable to climate change. There is no consensus on what should count as climate finance, the period for which the new target should run or who should contribute. Established in 1992, the group of donor nations excludes big emitters such as China and fossil-fuel producers such as Saudi Arabia and the UAE. Rich countries sometimes venture that these countries, too, should cough up.Disagreement also persists over the use to which any new money should be put. In 2021 rich countries pledged to double the amount of finance they provide for adapting to climate change, as opposed to for reducing emissions. Such adaptation is a priority for the poorest countries that emit little but are highly exposed to the risks of a warmer planet. Meanwhile rich countries, accountable to climate-conscious voters at home, are often more focused on getting middle-income countries to stop using coal. The headline announcement at last year’s conference was a deal for $20bn between a small group of rich countries and Indonesia to do exactly that. Making good on overdue promises is a start. But there is no end in sight for the rows over the bill for a hotter planet. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Binance has seen outflows amounting to more than $1 billion in the past 24 hours, not including bitcoin, according to data from blockchain analysis firm Nansen.
Founder and CEO Changpeng Zhao and others were charged with violating the Bank Secrecy Act by failing to implement an effective anti-money-laundering program and for willfully violating U.S. economic sanctions.
Binance agreed to forfeit $2.5 billion to the government and pay a fine of $1.8 billion — a combined $4.3 billion — in “one of the largest penalties we have ever obtained,” according to U.S. Attorney General Merrick Garland.

Binance cofounder and CEO Changpeng Zhao speaks during the 2022 Web Summit in Lisbon, Portugal, on Nov. 1, 2022.
Ben Mcshane | Sportsfile | Getty Images

Outflows from Binance have amounted to more than $1 billion in the past 24 hours, not including bitcoin, according to data from blockchain analysis firm Nansen, after founder and CEO Changpeng Zhao stepped down and pleaded guilty Tuesday in a deal with the Department of Justice.
Meanwhile, liquidity has dropped 25% over the same time frame as market makers pull back their positions, according to data provider Kaiko. 

The outflows are significant and close to what happened previously when the exchange and its founder were charged with 13 securities violations by the SEC.
The exchange’s native token, BNB, is down more than 8% in the last 24 hours. Binance holds around $2.8 billion worth of BNB tokens, according to Nansen. And in March, after Binance phased out zero-fee trading of crypto asset pairs including bitcoin, a key incentive for customers, the exchange began to see its share of all spot trading drop.
Binance remains the world’s largest crypto exchange globally, processing billions of dollars in trading volume every year.
Binance agreed to pay $4.3 billion in fines to the U.S. government. The plea deals end a yearslong investigation into the crypto exchange.
Assets of more than $65 billion remain on the platform, according to Nansen, meaning that Binance is likely capitalized enough to withstand a sudden rush of investors away from the platform. And while withdrawals are on the up, there has not yet been a “mass exodus” of funds from the exchange.

“After the momentary shock of the agreement with the announcement, there is no significant impact on most assets,” said Grzegorz Drozdz, a market analyst at investment firm Conotoxia Ltd.
“The cryptocurrency that seems to have suffered the most, losing more than 9%, is the BNB token from Binance. Of the top 100 cryptocurrencies, as many as 98 have seen a noticeable rebound over the past 24 hours. Bitcoin, meanwhile, fell 4% before rebounding and remaining with a loss of 1.3%,” he said.
Drozdz added that it may be a net positive for the industry now that the dispute with regulators is behind Binance and that the company has pledged to increase security measures.
“This, combined with the likely imminent approval of an ETF based on bitcoin quotes, could positively impact the crypto market in the long term,” said Drozdz.

Can Binance survive at this stage?

That’s the multibillion-dollar question the cryptocurrency giant faces after Zhao agreed to a plea deal and stepped down from the company.
Started by the Chinese-born entrepreneur in 2017, Binance went from being a relatively obscure name to being a major force in crypto in a matter of weeks.
Experts CNBC spoke with said that Binance is likely to make it through the ordeal despite a turbulent situation. They cited the company’s decision to comply with the DOJ process and implement a three-year strategy to get its operations into compliance, and the amount of assets held within the company’s reserves.
“The sum of $4 billion is clearly very large and will create real pain for Binance’s balance sheet,” Yesha Yadav, Milton R. Underwood professor of law and associate dean at Vanderbilt University, told CNBC via email.
“However, this fine does not appear aimed at dealing a fatal blow to the exchange. Based on Binance’s dominant position within the crypto-ecosystem over a number of years, CZ’s personal wealth … and continuing trading volumes despite declines in overall crypto trading volume as well as in Binance’s market share relative to other venues, I doubt that Binance will face risks to its solvency in paying this fine.” 

$4.3 billion plea deal

Zhao and others were charged with violating the Bank Secrecy Act by failing to implement an effective anti-money-laundering program and for willfully violating U.S. economic sanctions “in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law,” according to the Justice Department.
Binance has agreed to forfeit $2.5 billion to the government and to pay a fine of $1.8 billion, for a total of $4.3 billion.
U.S. Attorney General Merrick Garland said in a press conference Tuesday that it’s “one of the largest penalties we have ever obtained.”
“Using new technology to break the law does not make you a disruptor. It makes you a criminal,” Garland said. “Binance prioritized its profits over the safety of the American people.”
Zhao said Tuesday in a post on X, formerly Twitter, that he had “made mistakes” and “must take responsibility.”
Richard Teng, a former Abu Dhabi financial services regulator, was named as Zhao’s replacement. Teng was most recently the global head of regional markets at Binance.
He was also previously director of corporate finance at the Monetary Authority of Singapore.
The action against Binance and its founder was a joint effort by the Department of Justice, the Commodity Futures Trading Commission and the Treasury Department.
The Securities and Exchange Commission was notably absent.
Treasury Secretary Janet Yellen said in a release Tuesday that the exchange allowed illicit actors to make more than 100,000 transactions that supported activities such as terrorism and illegal narcotics and that it allowed more than 1.5 million virtual currency trades that violated U.S. sanctions.
It also allowed transactions associated with terrorist groups such as Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad, al-Qaida and ISIS, Yellen said in the release, noting Binance “never filed a single suspicious activity report.”
Zhao has been released on a $175 million personal recognizance bond secured by $15 million in cash and has a sentencing hearing scheduled for Feb. 23.

Binance to continue

Binance will continue to operate but with new ground rules. The company is required to maintain and enhance its compliance program to ensure its business is in line with U.S. anti-money-laundering standards. The company is required to appoint an independent compliance monitor.
The case against Binance, which was unsealed Tuesday, shows that three criminal charges were brought against the exchange, including conducting an unlicensed money-transmitting business, violating the International Emergency Economic Powers Act, and conspiracy.
Some of its rivals may look to take advantage of the situation, particularly Coinbase, Kraken, and OKX.
Coinbase and Kraken are currently waging their own respective legal battles with the SEC. In June, the agency hit Coinbase with a lawsuit similar to the one it brought against Binance, alleging it operates as an unauthorized securities exchange, broker and clearing agency. And on Monday the SEC sued Kraken, alleging that the exchange commingled $33 billion in customer crypto assets with its own company assets, creating the potential for a significant risk of loss to its users.
Vanderbilt’s Yadav said Binance’s reserves were likely to come under scrutiny as investors assess where to go after the exit of the company’s CEO. Attempts by Binance to create strategic transparency since the FTX collapse have “floundered,” she added.
Binance published its proof of reserves, a system to show its number of assets and liabilities. But this proof is based on limited information that can be divulged from public blockchains, and is not on par with a full-scale audit.
“There is no doubt that Binance’s reserves will be coming under scrutiny in the months and years to come,” Yadav explained. “A big question that has hung over Binance is how it is run, the state of its internal governance and risk management.”
“This is a venue that has long been known for its opacity as well as an impenetrable capital and organizational structure whose complexity has caused regulators like the CFTC to investigate these organizational interconnections as possible avenues for Binance to engage in activities violating applicable regulations,” Yadav said. More