CEO of world’s largest cryptocurrency exchange pleads guilty to money laundering violations
By Matt Egan, Evan Perez, Allison Morrow, Holmes Lybrand, Sean Lyngaas and Bryan Mena, CNN
New York (CNN) — Billionaire Changpeng Zhao and leading cryptocurrency exchange Binance pleaded guilty on Tuesday to federal charges in a watershed moment designed to bring order to the often-lawless crypto industry.
As part of a coordinated settlement across the federal government, Binance has agreed to pay more than $4 billion in fines and other penalties. Zhao, one of the most powerful figures in crypto, has agreed to step down as CEO from the exchange that he founded, and he will pay $200 million in fines.
Binance, the world’s largest crypto exchange, admitted to engaging in anti-money laundering, unlicensed money transmitting and sanctions violations.
US officials described this as the biggest-ever corporate resolution that includes criminal charges for an executive.
Following a years-long investigation, authorities allege Binance allowed bad actors to freely transact on the platform, enabling everything from child sex abuse and narcotics to terrorist financing for ISIS, Al Qaeda and Hamas’s Al-Qassam Brigades.
Zhao, who has amassed a fortune estimated at more than $23 billion, pled guilty to failing to maintain an effective anti-money laundering program.
US authorities hope the guilty plea from Binance and its founder, on top of the recent conviction of FTX co-founder Sam Bankman-Fried, will send a clear message to bad actors across the crypto industry.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed – now it is paying one of the largest corporate penalties in US history,” Attorney General Merrick Garland said in a statement.
Zhao faces a maximum of 10 years behind bars, though his ultimate sentence will likely be far lower. Federal guidelines likely place the high end of a possible sentence for Zhao around 18 months. Sentencing is ultimately decided by a judge.
According to the plea deal, Zhao agreed to prosecutors’ recommendation that he pay a fine of $50 million. In addition to the criminal fine, Zhao will pay $150 million in civil penalties, according to Commodity Futures Trading Commission. The proposed consent order also requires Binance to disgorge $1.35 billion of ill-gotten gains and pay a $1.35 billion civil monetary penalty to the CFTC.
“Binance turned a blind eye to its legal obligations in the pursuit of profits,” Treasury Secretary Janet Yellen said in a statement. “Its willful failures allowed money to flow to terrorists, cybercriminals and child abusers through its platform.”
The Binance guilty plea is part of a coordinated settlement reached with a wide range of government agencies, including the Justice Department, Treasury’s Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Asset Controls (OFAC) and the Commodity Futures Trading Commission. Treasury described the Binance settlement as its largest enforcement in history.
“The Binance platform was facilitating some truly horrible stuff – everything from terrorist financing to ransomware actions, child pornography and various scams and frauds,” a senior Treasury official told reporters.
US officials say Binance allowed more than 100,000 transactions involving illicit activity as well as more than 1.5 million virtual currency trades that violated US sanctions, including sanctions on Iran, Syria and Cuba.
Just as authorities announced the settlement, Zhao confirmed in a post on X (formerly known as Twitter) that he has stepped down as CEO.
“Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do,” Zhao said. “I made mistakes, and I must take responsibilities. This is best for our community, for Binance, and for myself.”
Zhao will be succeeded by Richard Teng, who previously served as Binance’s global head of regional markets.
“While Binance is not perfect, it has strived to protect users since its early days as a small startup and has made tremendous efforts to invest in security and compliance,” the company said in a statement Tuesday. “Binance grew at an extremely fast pace globally… [and] made misguided decisions along the way. Today, Binance takes responsibility for this past chapter.”
What Binance allegedly did wrong
Federal prosecutors unsealed court records on Tuesday alleging Binance, led by Zhao, processed transactions by customers who operated illicit mixing services and “laundered proceeds of darknet market transactions, hacks, ransomware and scams.” Prosecutors allege that Binance had lax anti-money laundering procedures.
This alleged misconduct paved the way for Binance to become king of the crypto exchanges, prosecutors allege.
“In part because of this scheme, and because Defendant prioritized growth, market share and profits over compliance with US law (Binance) became the largest cryptocurrency exchange in the world,” prosecutors said.
Prosecutors allege Binance, “knowingly failed” to register as a money service business, willfully violated the Bank Secrecy Act by failing to implement and maintain an effective anti-money laundering program and willfully caused violations of US economic sanctions.
The charges, filed in the US District Court for the Western District of Washington, accused Binance of a “deliberate and calculated effort to profit from the US market without implementing controls required by US laws.”
Prosecutors allege the misconduct started as early as August 2017, continued until at least October 2022 and included certain Binance officers, directors, employees and agents.
As Garland detailed the federal government’s investigation into Binance, he mentioned a message that one compliance employee sent in February 2019 that said the crypto exchange oughta get a banner that says: “Is washing drug money too hard these days? Come to Binance, we got cake for you.”
“By failing to comply with US law, Binance made it easy for criminals to move their stolen funds and illicit proceeds on its exchanges,” Garland said.
US officials won’t tolerate crime via crypto
Proponents of digital currencies point out that the great majority of business done via crypto is lawful and legitimate, and a cottage industry of companies have emerged in the last five years that work with law enforcement to track digital transactions.
But top US officials made it crystal clear Wednesday that they’ll continue to keep a close eye on illicit activities surrounding crypto.
“Today’s actions show that if you serve US customers, you must comply with US law,” said Nicole Argentieri, acting assistant attorney general. “US financial institutions are the gatekeepers for the safety and security of our financial system and because Binance serves a substantial amount of US customers, it was a US financial institution that was required to comply with anti-money laundering laws.”
Binance’s legal woes follow the collapse of another crypto exchange, FTX, and the conviction of it founder Sam Bankman-Fried on fraud charges. Those are the most extreme examples of the greater scrutiny that law enforcement and regulators have brought in recent months to the largely unregulated crypto industry.
But ransomware gangs from Russia and money launderers from North Korea, for example, continue to see crypto as core to their business model, and have often used publicly available tools, or “mixing services,” to hide their ill-gotten gains.
The US Justice Department in August unsealed federal charges against the co-founders of one such service, Tornado Cash, accusing them of moving $1 billion in cryptocurrency for criminals. One of the Tornado Cash co-founders has pleaded not guilty to the charges while the other remains at large.
Officials said they are taking an aggressive, whole-of-government approach to rooting out financial crimes via crypto.
“You have seen both in our actions today and in prior cases that we will be relentless in using every tool that we currently have to deploy against those who seek to use technologies in a way that abuse those platforms … or [that] don’t prevent the use of those platforms for illicit activities,” Deputy Attorney General Lisa Monaco said.
Monaco pointed to the creation of the National Cryptocurrency Enforcement Team within the Justice Department as an example that the feds mean business, including how government entities collaborate on investigating crimes involving crypto.
Some think more needs to be done.
“Regrettably, today’s settlement is not an outlier, and the lawlessness if not criminal activities of crypto will continue and increase until all prosecutors, regulators and elected officials force the industry to act like all other law-abiding people and firms in the financial industry,” Dennis Kelleher, co-founder, president, and CEO of Better Markets, said in a statement.
What is Binance?
Binance was founded in 2017 by Zhao, a Canadian national. US market regulators this year brought civil cases against Binance, which they accuse of running an illegal exchange for unregistered securities in the United States. The Securities and Exchange Commission in June sued Binance, saying the company ran an “extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
Binance has long argued that it isn’t subject to US laws because it doesn’t have a physical headquarters in America.
The SEC also alleged that Zhao and Binance commingled customer assets and even diverted some to an entity controlled by Zhao.
Zhao claims that the company’s headquarters are wherever he is at any point in time, “reflecting a deliberate approach to attempt to avoid regulation,” according to a complaint by the Commodity Futures Trading Commission. That agency accused Binance and Zhao of violating US derivatives trading laws in multiple ways, including allegedly secretly coaching “VIP” customers within the United States on how to evade compliance controls.
A spokesperson for Binance said in June that the company takes the SEC’s allegations seriously, but it believes the agency’s accusations are “unjustified.”
“We respectfully disagree with the SEC’s allegations that Binance operated as an unregistered securities exchange or illegally offered and sold securities,” the company said in a statement. “Because of our size and global name recognition, Binance has found itself an easy target caught in the middle of a US regulatory tug-of-war.”
This story has been updated with additional developments.
The-CNN-Wire
™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.
