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Binance founder Changpeng Zhao pleads guilty to money laundering violations
Changpeng Zhao, the founder of Binance, the world’s largest cryptocurrency exchange, pleaded guilty to money laundering violations, the government announced Tuesday, a major blow to the most powerful and influential figure in the global crypto industry.
Binance itself also pleaded guilty and agreed to pay $4.3 billion in fines and restitution to the government, according to federal authorities. As part of the deal, Binance reached agreements with the Department of Justice, the Treasury Department, and the Commodity Futures Trading Commission, all of which have been investigating the company for years.
As part of his guilty plea, Mr. Zhao agreed to pay a $50 million fine and resign as chief executive of the company. Mr. Zhao faces up to 18 months in prison under federal sentencing guidelines, but prosecutors are keeping open the possibility of seeking a harsher sentence, according to senior Justice Department officials.
Binance, as part of its own plea deal with federal prosecutors, will agree to the appointment of a government observer to oversee the company. Mr. Zhao is barred from involvement in Binance until three years after the controller is appointed, according to court documents.
Mr. Zhao and a Binance representative pleaded guilty in federal court in Seattle. In a statement, Binance said the agreement recognized “our company’s liability for historical and criminal compliance violations.” The company said Richard Teng, a senior executive, would take over as chief executive, but that Mr. Zhao would remain “available for consultation on historic areas of our business.”
Mr. Zhao said the, the platform formerly known as Twitter, that he had “made mistakes” and that he “must take responsibility for them.” But he also said he was looking forward to taking a break from his grueling schedule and planned to make “passive investments” in various crypto projects.
For the relatively young and rapidly growing world of crypto, the guilty pleas of Binance and Mr. Zhao were a monumental development. At times, Binance processed two-thirds of all digital currency transactions, making it a vital broker and intermediary in the crypto world. It was long believed that it was the richest man in cryptography, Mr. Zhao is the industry’s most prominent and closely watched champion, with more than 8.5 million followers on X.
The guilty pleas completed a one-two punch of sorts from the Justice Department. This month, disgraced crypto mogul Sam Bankman-Fried was found guilty of fraud during a criminal trial stemming from the collapse of his crypto exchange FTX.
The actions against Binance and Mr. Zhao were announced at a press conference in Washington attended by Treasury Secretary Janet L. Yellen and Attorney General Merrick Garland. Mr. Zhao and other executives “engaged in a deliberate and calculated effort to take advantage of the U.S. market without implementing the controls required by U.S. law,” Mr. Garland said.
Since FTX’s implosion a year ago, federal authorities have criminally charged a procession of crypto executivesand the Securities and Exchange Commission has filed lawsuits against some of the industry’s largest companies, including Coinbase, the U.S. publicly traded stock exchange. On Monday, the SEC sued Kraken, another cryptocurrency exchange, accusing it of operating without proper registration and commingling customer deposits with its own business assets.
Court documents released Tuesday detail wide-ranging efforts by Mr. Zhao and other top Binance employees to evade laws, including parts of the Bank Secrecy Act, that require financial institutions and their employees to know the true identity of their customers, to avoid doing so. doing business with criminals or people prohibited by economic sanctions, and registering all U.S.-based businesses with regulators. Customers from Iran, Cuba and Syria, who face sanctions – were able to access the Binance platform, according to court documents.
During the press conference, Treasury officials noted that Binance did not have programs in place to report suspicious transactions involving terrorist groups, including Hamas in the Gaza Strip, Al-Qaeda and the State Islamic. “Binance allowed illicit actors to transact freely, supporting activities ranging from child sexual abuse to illegal narcotics to terrorism,” Ms. Yellen said.
Authorities also said Mr. Zhao knew that Binance’s efforts to prevent people from sanctioned countries from doing business on the exchange were inadequate. Prosecutors specifically accused Binance of conspiring to operate an unlicensed money transfer business and violating banking and sanctions laws.
In addition to illegal foreign transactions, Binance did business with U.S.-based companies, even though it was not supposed to have such customers on its Binance.com platform, authorities said. Instead, a different platform – Binance.US, which Mr. Zhao also owned – was needed to handle this activity and comply with the country’s anti-money laundering laws.
But Mr. Zhao and other Binance employees believed it would be better for the major cryptocurrency exchange to handle the big customers, according to court documents.
According to the filings, Mr. Zhao, widely known as CZ, personally sought to hide Binance’s relationships with large U.S.-based clients – called VIPs and managed by a special manager – in order to “make so that American surveillance agencies do not cause any problems. troubles.”
The filing cites a June 2019 call in which Mr. Zhao advised other Binance employees to speak to U.S.-based VIP customers using methods such as phone calls that would leave “no trace” of the interactions.
Binance also offered some prominent customers a chance to regain access to its main trading platform even after they were kicked out due to concerns they were engaged in criminal activity, according to court documents. The documents cite an incident in July 2020 in which Binance employees identified a particular user as one of the “major contributors to illicit activity”, banned the user from the platform, and then discussed the way to give the user instructions on how to open a new Binance account.
According to the government, a Binance compliance employee said in a written communication that the company had an open door to people laundering drug money. “It’s too hard to wash drug money these days,” the employee wrote. “Come to Binance, we have some cake for you.”
The penalty in Binance’s settlement is one of the largest ever imposed by the US government on a financial company. It is close to about 5 billion dollars that Goldman Sachs paid to authorities in the United States and around the world in 2020 to resolve foreign bribery charges. But it is far from being the case the 8.9 billion dollars that BNP Paribas paid federal prosecutors in 2014 for violating U.S. sanctions rules.
Before the settlement, regulators had taken steps this year to penalize Binance. In March, the CFTC deposit a civil suit against the company and Mr. Zhao, accusing them of violating financial rules intended to protect American investors.
Then, in June, the Securities and Exchange Commission accused Binance and Mr. Zhao of poor management of client funds and lie to regulators. Notably, the SEC, which is committed to regulating digital assets like stocks or bonds, was not a party to Tuesday’s settlement. The agency did not respond to a request for comment.
In its lawsuit against Binance, the SEC said the company transferred billions of dollars of customer funds to a separate company, Merit Peak Limited, controlled by Mr. Zhao.
This accusation echoes the collapse of FTX, once Binance’s biggest international rival. This month, Mr. Bankman-Fried, the founder of FTX, was found guilty accused of embezzling billions in client funds, using the money to fund campaign donations and other extravagant spending. After his own tweets helped trigger the chain of events which led to the implosion of FTX last year, Mr. Zhao presented himself as the compliant face of the crypto industry.
The pace of enforcement actions this year has hurt Binance’s business. After the SEC lawsuit, banks cut off access to Binance.US, forcing the company to freeze a large part of its commercial activities. Several senior leaders quickly left.
In public, Mr. Zhao has often dismissed negative news as “FUD,” or fear, uncertainty and doubt, the shorthand the crypto industry has long used to ridicule skeptics and critics.
It also hired a larger compliance team, and in January a former federal prosecutor, Noah Perlman, was named Binance’s new global head of compliance.
However, cracks were appearing. This year, Binance’s share of the crypto trading market has increased dived amid attacks from regulators. And in July, several of its senior leaders, including its strategy director And a senior compliance officerannounced they were leaving the company.
Mr. Zhao’s fate remains uncertain. His sentencing is months away. Meanwhile, his bail was set at $175 million, secured by $15 million in cash, and a federal judge allowed him to return to the United Arab Emirates, where he has lived since this year.
In his Tuesday post, he said he doesn’t see himself running a startup again.
“If there are any listeners, I may be willing to serve as a coach/mentor to a small number of aspiring entrepreneurs, privately,” he wrote. “If for nothing else, I can at least tell them what not to do. »
Alan Rappeport contributed reporting.