The world’s largest cryptocurrency exchange, Binance.com, has pleaded guilty to multiple federal charges and has agreed to pay over $4 billion, according to the US Department of Justice press release.
The investigation into Binance related to the Bank Secrecy Act (BSA), failure to register as a money-transmitting business, and the International Emergency Economic Powers Act (IEEPA).
Binance’s founder and CEO, Changpeng Zhao (CZ), has also pleaded guilty to failing to maintain an effective Anti-Money Laundering (AML) program and has resigned as CEO of Binance. He will pay a $200 million fine of his own.
It is the biggest-ever corporate resolution that includes criminal charges for an executive.
“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,” said Attorney General Merrick B. Garland.
Binance’s list of criminal charges is long
Founded in 2017, Binance focused on attracting high-volume customers around the world and quickly became the largest cryptocurrency exchange in the world.
Binance customers are mostly US citizens which meant that the exchange was subject to several regulations. Binance was required to register with the Treasury’s Financial Crimes Enforcement Network (FinCEN) as a money service and implement an effective AML program to prevent money laundering through the platform.
However, Binance did not implement comprehensive Know-Your-Customer (KYC) protocols or systematically monitor transactions. Binance never filed a suspicious activity report with FinCEN and allowed users to open accounts and trade without submitting any identifying information except for an email address.
Due to lax security protocols, between August 2017 and October 2022, US users conducted trillions of dollars in transactions on the platform, generating over $1.6 billion in profit for Binance.
Binance also needed to implement controls that would prevent US customers from conducting transactions with customers in sanctioned jurisdictions, such as Iran.
But despite knowing that the system it used to match customers for transactions would cause forbidden transactions, Binance failed to take any remedial steps.
Because of this intentional failure, between January 2018 and May 2022, over $898 million were exchanged in trades between US users and residents in Iran.
“Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” said Secretary of the Treasury Janet L. Yellen.
Binance agrees guilty plea settlement
As part of the plea agreement with the Department of Justice, Binance has agreed to forfeit over $2.5 billion and to pay a criminal fine of over $1.8 billion. Binance separately has also reached agreements with the Commodity Futures Trading Commission (CFTC), FinCEN, and Office of Foreign Assets Control (OFAC).
Deputy Attorney General Lisa O. Monaco said that the charges, guilty plea, and the financial penalty “sends an unmistakable message to crypto and DeFi companies” that you must obey US laws if you serve US customers.
Changpeng Zhao, Binance’s founder and CEO, admitted that he understood that Binance was required to register with FinCEN and implement an effective AML program. However, he told employees it was “better to ask for forgiveness than permission,” and prioritized Binance’s growth over compliance with US laws.
Zhao has agreed to a separate plea deal with the prosecutors. He will pay a fine of $50 million. In addition to the criminal fine, Zhao will pay $150 million in civil penalties.
Zhao is stepping down from his role as CEO of Binance. He announced on X that Binance’s former global head of regional markets, Richard Teng, would be immediately taking over.
Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.
Binance is no longer a baby. It is…
— CZ 🔶 BNB (@cz_binance) November 21, 2023
The former chief faces a maximum of 10 years behind bars, though his ultimate sentence will likely be far lower. Despite the criminal proceedings, Zhao will keep his majority share of Binance. However, he won’t be allowed to be an executive within the company.
“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.
Zhao’s guilty plea makes him the second high-profile cryptocurrency exchange CEO to be prosecuted in recent weeks. Earlier in November, a New York federal court jury found Sam Bankman-Fried guilty on seven charges of fraud and conspiracy.
US authorities hope that the guilty pleas of high-profile people will bring some order to the volatile crypto industry.