Binance Founder Changpeng Zhao Pleads Guilty to Money Laundering Violations

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 said on Tuesday, a surprise blow to the most powerful and influential man in the global crypto industry.

According to federal authorities, Binance also pleaded guilty and agreed to pay a $4.3 billion fine and restitution to the government. Under the settlement, Binance settled with the Justice Department, 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 step down from his role as chief executive of the company. According to senior Justice Department officials, Mr. Zhao faces up to 18 months in prison under federal sentencing guidelines, but prosecutors are leaving open the possibility of seeking a harsher penalty.

Binance, as part of its own plea agreement with federal prosecutors, will accept the appointment of a government monitor to oversee the business. Court documents show Mr Zhao is barred from any involvement in Binance for three years after being appointed monitor.

Mr Zhao and a representative of Binance entered guilty pleas in federal court in Seattle. one in statement, Binance said the agreement acknowledged “our company’s responsibility for historic, criminal compliance violations.” The company said top executive Richard Teng would take over as chief executive, but Mr Zhao “will remain available for consultation on historic areas of our business.”

Mr. Zhao said on, the platform formerly known as Twitter, said it had “made mistakes” and “must take responsibility.” But he also said he’s looking forward to taking a break from his grueling schedule, and plans to make some “passive investments” in various crypto projects.

For the relatively young and fast-growing crypto world, the guilty pleas of Binance and Mr. Zhao were a monumental development. At times, Binance has processed two-thirds of all digital currency trades, making it a significant power broker and arbiter in the crypto world. long considered richest man In crypto, Mr. Zhao is one of the industry’s most prominent and closely watched champions More than 8.5 million followers On X.

The guilty pleas accomplished a one-two punch by the Justice Department. This month, disgraced crypto mogul Sam Bankman-Fried was convicted of fraud in a criminal trial stemming from the collapse of his FTX crypto exchange.

The action against Binance and Mr. Zhao was announced at a news conference in Washington, attended by Treasury Secretary Janet L. Yellen and Attorney General Merrick Garland. Mr. Garland said Mr. Zhao and other executives “engaged in a deliberate and calculated effort to profit from the U.S. market without imposing the controls required by U.S. law.”

Since the FTX implosion a year ago, federal authorities have laid criminal charges on a procession of crypto executives, and the Securities and Exchange Commission filed lawsuits against some of the industry’s largest companies, including publicly traded US exchange Coinbase. Is. On Monday, the SEC sued Kraken, another crypto exchange, accusing it of operating without proper registration and commingling customer deposits with its corporate assets.

Court documents made public on Tuesday describe a broad effort by Mr. Zhao and other senior Binance employees to evade laws, including parts of the Bank Secrecy Act, which requires financial institutions and their employees to know the true identities of their customers. If necessary, avoid doing so. Doing business with criminals or people barred by economic sanctions, and registering any US-based business with regulators. Iran, Cuba and Syria – customers from all over will face sanctions – Court papers state that they were able to access the Binance platform.

At the press conference, Treasury officials said Binance had failed to establish programs to report suspicious transactions linked to terrorist groups including Hamas, al Qaeda and ISIS in the Gaza Strip. “Binance was allowing illicit actors to transact freely, supporting activities ranging from child sexual exploitation to illegal narcotics to terrorism,” Ms Yellen said.

Officials also said Mr. Zhao was aware that Binance’s efforts to prevent people in sanctioned countries from trading on the exchange were inadequate. Prosecutors specifically accused Binance of conspiring to run an unlicensed money remittance business and violating banking and sanctions laws.

In addition to illegal offshore transactions, Binance traded with firms based in the United States, even though it should not have had any such clients on its platform, authorities said. Instead, a separate platform – Binance.US, also owned by Mr Zhao – was required to handle that business and comply with the country’s anti-money laundering laws.

But court filings said Mr. Zhao and other Binance employees believed it would be better for the main cryptocurrency exchange to handle larger clients.

According to the filing, Mr Zhao, widely known as CZ, personally tried to hide Binance’s transactions with large US-based clients – called VIPs and controlled by a special manager. This was done – so as to “not cause any trouble to US oversight agencies.”

The filing cited a June 2019 call in which Mr. Zhao advised other Binance employees to speak to U.S.-based VIP clients using methods such as phone calls, leaving “no trace” of the conversation.

Binance also gave some key customers the opportunity to gain access to its main trading platform, even though they were locked out due to concerns that they were involved in criminal activity, court papers said. The documents cite a July 2020 incident in which Binance employees identified a particular user as one of the “top contributors to illicit activity,” blocked the user from the platform, and then instructed the user to open a new Binance account. Discussed giving.

According to the government, a compliance employee at Binance said in a written communication that the company has an open door for people involved in drug money laundering. “Has it become very difficult to launder drug money these days,” the employee wrote. “Come to Binance, we’ve got a cake for you.”

The penalty in the Binance settlement is the largest ever imposed by the US government against a financial firm. This is close to the $5 billion that Goldman Sachs paid to officials in the United States and around the world in 2020 to resolve foreign bribery allegations. but it falls short BNP Paribas’s $8.9 billion Paid off federal prosecutors in 2014 for violating US sanctions rules.

Before the settlement, regulators had already taken steps to punish Binance this year. In March, the CFTC filed a civil lawsuit against the firm and Mr. Zhao, accusing them of violating financial rules designed to protect American investors.

Then in June, the Securities and Exchange Commission accused Binance and Mr. Zhao of misusing customer funds and lying to regulators. Notably, the SEC, which is determined to regulate digital assets like stocks or bonds, was not a party to the agreement reached on Tuesday. The agency did not respond to a request for comment.

In its lawsuit against Binance, the S.E.C. Said firm transferred billions of dollars in client funds to a separate company, Merit Peak Ltd., which was controlled by Mr. Zhao.

The allegations echo the collapse of FTX, once Binance’s biggest international rival. This month, FTX’s founder, Mr. Bankman-Fried, was indicted on charges that he misappropriated billions in client funds by using the money to finance campaign donations and other extravagant expenses. After his own tweets helped set off the chain of events that led to FTX’s implosion last year, Mr. Zhao established himself as the crypto industry’s compliant face.

The barrage of enforcement actions this year have hurt Binance’s business. Following the SEC lawsuit, banks blocked access to Binance.US, forcing the company to halt most of its trading activities. Many top officials soon left.

Publicly, Mr. Zhao has often dismissed negative news by labeling it as “FUD,” or fear, uncertainty and doubt, a term the crypto industry has long used to ridicule skeptics and critics.

He also hired a larger compliance staff and in January, Noah Pearlman, a former federal prosecutor, was appointed Binance’s new global compliance head.

Still, cracks were visible. Binance’s share in the crypto trading market has increased this year drowned Under attack from regulators. And in July many of its top officials were also involved chief strategy officer And a high ranking compliance officerannounced that he was leaving the company.

Mr Zhao’s fate remains unclear. There are still several months left for his sentencing. Meanwhile, his bail was set at $175 million with $15 million in cash, and a federal judge allowed him to return to the United Arab Emirates, where he has been living this year.

In his post on Tuesday, he said that he cannot see himself running a start-up again.

“If there’s an audience, I would personally be willing to coach/mentor some budding entrepreneurs,” he wrote. “If nothing else, I can at least tell them what not to do.”

alan rapport Contributed to the reporting.

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