Binance chief Changpeng Zhao resigned and pleaded guilty to violating U.S. anti-money laundering laws in a $4.3 billion settlement ending a years-long investigation into the world’s largest crypto exchange, prosecutors announced Tuesday.
The deal, which will see Zhao personally pay $50 million, was described by prosecutors as one of the largest corporate sanctions in US history. This is another blow to the crypto industry that has been plagued by investigations and follows the recent fraud conviction of FTX founder Sam Bankman-Fried.
But several legal experts said it was a good outcome for Zhao, leaving his vast wealth intact and allowing him to retain his stake in Binance, the exchange he founded in 2017.
“Binance has made it easy for criminals to move their stolen funds and illicit proceeds across its exchanges,”
By United States Attorney General Merrick Garland
Binance violated US anti-money laundering laws and sanctions and failed to report more than 100,000 suspicious transactions with organizations described by the US as terrorist groups, including Hamas, Al-Qaeda and Islamic State of Iraq and Syria, authorities said.
The exchange also never reported transactions with websites dedicated to selling child sexual abuse material and was one of the largest beneficiaries of ransomware proceeds, they said.
“Binance has made it easy for criminals to move their stolen funds and illicit proceeds across its exchanges,” U.S. Attorney General Merrick Garland said Tuesday. “Binance also did more than just fail to comply with federal law. It pretended to comply.”
Some of the charges, both criminal and civil, relate to practices first reported by Reuters in a series of articles in 2022.
The Justice Department, which negotiated the settlement with the Commodity Futures Trading Commission (CFTC) and the Treasury Department, is seeking an 18-month prison sentence for Zhao, the maximum sentence suggested by federal guidelines, the New reported York Times.
Binance’s former chief compliance officer, Samuel Lim, has been indicted by the CFTC, the agency said. Neither Lim nor his lawyers immediately responded to requests for comment.
Binance will pay $1.81 billion within 15 months, as well as an additional forfeiture of $2.51 billion as part of the deal, prosecutors said.
Zhao, a Chinese-born billionaire who immigrated to Canada at age 12, pleaded guilty Tuesday afternoon in a Seattle court.
“Today I resigned as CEO of Binance,” Zhao said in a tweet after the settlement was announced. “Certainly, it wasn’t easy to let go emotionally. But I know it’s the right thing to do. I made mistakes and I have to take responsibility for them. It’s better for our community, for Binance and for myself.”
While authorities have been investigating Zhao and Binance for years, Zhao’s exit marks a dramatic development for one of the crypto industry’s most powerful figures and for Binance. The deal raises questions about the future of the crypto exchange, which it tightly controls.
Richard Teng, a longtime Binance executive, will take over at Binance, Zhao said in his post.
“These resolutions recognize our company’s responsibility for historical and criminal compliance violations and allow our company to turn the page,” Binance said in a statement.
In a separate statement, Teng said he would focus on “reassuring users that they can remain confident in the company’s financial strength, safety and security.”
(1/2)Zhao Changpeng, founder and chief executive officer of Binance, speaks during an event in Athens, Greece November 25, 2022. REUTERS/Costas Baltas/File photo Acquire licensing rights
Chance to live another day
Yesha Yadav, a law professor at Vanderbilt University, said that while the fine was extremely high, it seemed manageable for Binance.
“This deal…seems designed to give Binance the chance to live another day, while removing CZ, a figurehead who has been so intrinsically linked to the growth of a business model,” she said. declared.
Given that Zhao appears to retain his stake in Binance, it is possible that he could still exert influence over the company, Yadav added.
Zhao is worth $10.2 billion, according to Forbes.
Given the severity of the violations and the actors involved, Zhao appears “to have done pretty well” because the U.S. government likely had to lure him to come to the United States, said Robert Frenchman of Mukasey Frenchman LLP.
“He still has enormous wealth,” Frenchman said. “He probably won’t spend too much time in a US prison. He retains his stake in Binance, a company that has now resolved some of its biggest legal problems.”
Prosecutors likely weighed those benefits for Zhao against the possibility that he would not have surrendered otherwise and the desire to convince Binance to agree to pay a large sum, said Jeffrey Cohen, an assistant professor at Boston College Law School and former federal prosecutor.
“If you can get a good number for a corporate fine and the cost is that individual defendants suffer a slightly lesser penalty, the government makes that calculation,” Cohen said.
“POTENTIALLY ILLEGAL”
Binance has been under Justice Department scrutiny since at least 2018, Reuters reported last year, which is just one of several legal issues it faces in the United States.
Federal prosecutors asked the company in December 2020 to provide internal records about its anti-money laundering efforts, as well as communications involving Zhao.
The CFTC filed a civil complaint against Binance in March, alleging that it failed to implement an effective anti-money laundering program to detect and prevent terrorist financing.
Internally, Binance executives and employees acknowledged that the platform facilitated “potentially illegal activities,” the CFTC alleged.
In February 2019, Binance’s Lim received information about the Palestinian militant group Hamas’ trading on Binance, the CFTC wrote.
Lim, a Singaporean, “explained to a colleague that terrorists usually send ‘small amounts,’ because ‘large amounts constitute money laundering,'” the CFTC said in its March lawsuit.
Daniel Silva, a partner at the Buchalter law firm and a former federal prosecutor, said the allegations likely could have supported charges against Zhao that carry harsher penalties, such as fraud or money laundering.
“He was facing much more serious charges and so this resolution is very favorable to him,” Silva said.