Binance’s Founder and CEO Enter Guilty Pleas for Federal Charges | Editorial Perspective
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An employee responsible for ensuring compliance at Binance, the world’s largest cryptocurrency exchange, reportedly made a statement that read, “We need a banner that says ‘is washing drug money too hard these days—come to Binance we got cake for you.'”
Could Zhao’s resignation and guilty plea herald a new era for Binance and the crypto industry?
According to court documents, Binance was established in 2017, shortly after the closure of the Bulgarian bitcoin exchange BTC-e. By prioritizing growth and profit over compliance with US laws, Binance emerged as the largest digital asset platform in the world. However, it failed to implement crucial components of an effective anti-money laundering (AML) program, including comprehensive know-your-customer (KYC) protocols and systematic transaction monitoring, as well as neglecting to file suspicious activity reports (SARs) with FinCEN, a US financial watchdog.
Instead, Binance focused on attracting high-volume customers based in the US, allowing them to open accounts and conduct trillions of dollars worth of transactions on the platform without providing any identifying information other than an email address. As Attorney General Merrick B. Garland explained:
“Binance served US customers and was obligated to register with FinCEN as a money services business and implement an effective AML program to prevent money laundering, as well as to prevent US customers from engaging in transactions with customers in sanctioned jurisdictions.”
Acting U.S. Attorney Tessa M. Gorman for the Western District of Washington added:
“Binance’s failure to establish an effective AML program enabled illicit actors to utilize the exchange for various purposes, including conducting transactions for mixing services to conceal the source and ownership of digital assets, transferring illicit proceeds from ransomware attacks, and facilitating darknet market transactions, exchange hacks, and various internet-related scams. Binance neglected to report over 100,000 suspicious transactions involving terrorist groups, such as Hamas, as well as transactions related to ransomware, child sexual exploitation material, and scams.”
Secretary of the Treasury Janet L. Yellen also noted:
“In addition, Binance did not implement controls to prevent US users from trading with individuals in sanctioned countries like Iran, resulting in over $898 million in trades between US users and individuals residing in Iran. Changpeng Zhao knowingly operated a financial platform without basic anti-money laundering measures, allowing illegal transactions between US users and users in sanctioned jurisdictions, including Iran, Cuba, Syria, and Russian-occupied regions of Ukraine. Binance profited significantly from these transactions, earning fees totaling over $1.6 billion. This gave sanctioned individuals unrestricted access to American capital and financial services,” explained Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division.
Consequently, Binance pleaded guilty and agreed to pay over $4 billion to settle the Justice Department’s investigation into violations related to the Bank Secrecy Act, failure to register as a money transmitting business, and the International Emergency Economic Powers Act (IEEPA). As part of the plea agreement, Binance will forfeit $2.5 billion and pay a criminal fine of $1.8 billion, resulting in a total financial penalty of $4.3 billion. This marks one of the largest corporate penalties in US history, as highlighted by Attorney General Merrick B. Garland. Binance has also reached separate agreements with the CFTC, FinCEN, and OFAC, and approximately $1.8 billion will be credited towards those resolutions, according to Deputy Attorney General Lisa O. Monaco.
Changpeng Zhao, the founder and CEO of Binance, a Canadian national, also pleaded guilty to failing to maintain an effective AML program, violating the BSA, and stepped down as CEO. He has been replaced by Richard Teng, a former Abu Dhabi financial services regulator, who most recently served as the global head of regional markets at Binance.
The compliance officer at Binance may have channeled Marie Antoinette’s infamous words, “Let them eat cake,” as a metaphorical statement before the guilty plea. This plea is part of a coordinated effort with the Department of the Treasury’s FinCEN and Office of Foreign Assets Control, as well as the US Commodity Futures Trading Commission.
Following the settlement, Binance experienced client fund outflows exceeding $1 billion, similar to when the Securities and Exchange Commission charged Binance and its founder with mishandling customer funds and deceiving regulators earlier in June. Secretary of the Treasury Janet L. Yellen noted that Binance’s legal issues with the SEC have yet to be resolved.
The journey of Changpeng Zhao: From McDonald’s to crypto magnate
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