22nd November 2023 – (New York) Changpeng Zhao, the chief executive of Binance, has stepped down from his position after pleading guilty to a criminal charge of failure to protect against money laundering. This development comes after federal prosecutors launched a comprehensive case against Binance, the world’s largest cryptocurrency exchange. Binance itself has also pleaded guilty to multiple criminal charges related to money laundering and violations of international financial sanctions. As part of the plea agreement, Binance has agreed to pay over $4.3 billion in penalties, according to U.S. authorities.
Over the span of five years, Binance transformed from a startup into a massive exchange with employees in numerous countries. By November 2022, it controlled more than 50% of the cryptocurrency market. However, the company’s success has long been veiled in secrecy, with Binance claiming to have no headquarters and frequently clashing with regulators worldwide.
The crypto industry’s potential ties to terror financing have faced renewed scrutiny following Hamas’s attack on Israel last month. In response to the attack, Israel reportedly closed more than 100 Binance accounts, as reported by the Financial Times.
The U.S. Treasury Department stated on Tuesday that Binance failed to report “well over 100,000 suspicious transactions” associated with ransomware attacks, child sexual abuse, large-scale hacks, drug trafficking, and terrorist groups such as al-Qaeda and ISIS.
“In part because of the crimes committed, Binance became the largest cryptocurrency exchange in the world,” said U.S. Attorney General Merrick Garland. “Now, Binance has paid one of the largest corporate penalties in US history.”
Changpeng Zhao, a prominent and influential figure in the crypto industry, entered his guilty plea in a federal court in Seattle. He has also agreed to pay a US$50 million fine. Zhao acknowledged his mistakes and took responsibility for his actions in a statement posted on the social media platform X, where he also confirmed his resignation.
Under the terms of his plea agreement, Zhao is prohibited from participating in Binance’s management. However, according to sentencing guidelines, he could face a potential prison sentence of up to 18 months, as stated by a Department of Justice official.
Richard Teng, who previously served as Binance’s global head of regional markets, will take over as the new CEO in Zhao’s stead.
In 2021, the Justice Department established a new unit focused on investigating the criminal misuse of digital assets. The Joe Biden administration has emerged as one of the jurisdictions with the toughest stance on cryptocurrencies globally. Earlier this month, a jury found Sam Bankman-Fried, a rival of Zhao’s, guilty of fraud and money laundering following the collapse of his FTX crypto exchange.
“Using new technology to break the law does not make you a disruptor,” Garland emphasized during Tuesday’s announcement. “It makes you a criminal.”
The agreements reached on Tuesday also resolve a case brought by the Commodity Futures Trading Commission (CFTC), which had accused Binance and Zhao of operating illegally in the United States. The CFTC’s civil complaint alleged that a significant portion of Binance’s reported trading volume and profitability stemmed from the extensive solicitation and access to US customers, contradicting the exchange’s claims.
In June, the U.S. Securities and Exchange Commission (SEC) filed 13 civil charges against Binance, accusing the company of various violations, including commingling billions of dollars of customer funds with a separate trading firm owned by its CEO, operating unregistered exchanges, broker-dealers, and clearing agencies. The SEC was not mentioned in the resolutions announced on Tuesday and declined to comment.
Authorities stated that Binance has admitted to engaging in anti-money laundering activities, unlicensed money transmission, and violations of sanctions. The alleged misconduct occurred between August 2017 and October 2022, as detailed in court filings.
Mark Kornfeld, a lawyer from the firm Buchanan Ingersoll and Rooney, described the Department of Justice’s action against the leading crypto player as a significant development for the industry as a whole. He emphasised that this serves as proof that such actions are becoming the new norm, signalling to everyone in the industry that stricter regulations and enforcement are here to stay.
The CFTC, in its March lawsuit, also alleged that Binance knowingly facilitated potentially illegal activities. In one instance in 2019, Binance received information regarding Hamas-related transactions, but an employee reportedly dismissed the risk, stating that “$600 bucks can barely buy an AK-47.” A year later, a Binance executive allegedly stated that certain customers, including some from Russia, were “here for crime,” to which a colleague replied, “We see the bad, but we close two eyes.”