(Bloomberg) -- The Department of Justice is retreating from picking an elite New York law firm for a key assignment overseeing cryptocurrency exchange Binance Holdings Ltd. because of its work for FTX, according to people with knowledge of the matter.

Sullivan & Cromwell was close to winning approval to serve as independent monitor for Binance on behalf of both the Justice Department and the Treasury Department’s Financial Crimes Enforcement Network, Bloomberg reported in February. The monitorships were a condition of the $4.3 billion deal by which Binance pleaded guilty to violating US money-laundering regulations and trade sanctions.

But Justice Department officials have since expressed concern about the criticism the firm has faced over its work for FTX, a onetime major rival of Binance. The department is now reviewing other options for the lucrative monitorship, said the people, who asked not be identified because the discussions are not public. FinCEN still intends to use Sullivan & Cromwell, the people said. 

The Justice Department declined to comment. A spokesperson for FinCEN declined to comment. Sullivan & Cromwell didn’t immediately respond to a request for comment.

Read More: FTX Probe to Test Whether Law Giant Is Tainted by Conflicts 

Sullivan & Cromwell represented FTX both before and after its November 2022 bankruptcy. The firm has billed more than $170 million in the latter proceeding, in which its work has included tracking down billions of dollars in assets spread across real estate portfolios, crypto wallets and executives’ bank accounts to aid in creditors’ recoveries. An FTX lawyer told the bankruptcy court in January that creditors and former customers were in line to get all of their money back.

But Sullivan & Cromwell has long been subject to criticism for its work for FTX prior to the exchange’s collapse and its alleged failure to detect the fraud being perpetrated by co-founder Sam Bankman-Fried. The law firm is being sued by FTX customers and its work for the exchange is also being probed by an independent bankruptcy examiner.

Bankman-Fried — who was last month sentenced to 25 years in prison for stealing billions of dollars from FTX customers —  also tried to cast blame on Sullivan & Cromwell and other outside lawyers as part of his defense strategy. The law firm has said its work for FTX was limited, and the exchange’s new management has defended Sullivan & Cromwell against what it calls a “false narrative” pushed by Bankman-Fried and others.

The debate over the firm has slowed down the process to get a monitor in place for Binance. Both the US government and the company had said they would “use their best efforts” to choose a monitor within a soft deadline of 60 business days following the Nov. 21 plea agreement. 

Tasked with ensuring that Binance complies with its plea agreement, the monitor will gain access to internal records, facilities and employees to report on the company’s activities to the government. Binance has been asked to identify and report tens of thousands of suspicious activity transactions the Treasury Department accused the company of ignoring in the past.

As part of Binance’s settlement, the Justice Department monitorship is set to last for three years and the FinCEN one for five. 

--With assistance from Chris Strohm.

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