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In The News: Binance and CZ Pay Record Fines
The latest major enforcement action in the US against crypto
On Monday, Binance CEO Changpeng Zhao (CZ) pleaded guilty to money laundering violations and agreed to pay a $50 million fine. Binance itself agreed to a massive $4.3 billion fine to settle related cases with the Justice Department, the Treasury Department, and the Commodity Futures Trading Commission (CFTC).
CZ violated the Bank Secrecy Act, which requires US financial institutions to prevent money laundering. As a result, Binance enabled and profited from malicious transactions involving terrorist groups like ISIS and al Qaeda and US-sanctioned countries, including Iran, Cuba, Syria, and Russian-occupied regions of Ukraine.
The fine against Binance is among the largest ever imposed in the United States. CZ will step down from his role at Binance and faces up to 18 months in prison. Both parties will pay additional sums in civil penalties and to forfeit ill-gotten gains.
Binance additionally pleaded guilty to failing to register as a money transmitting business and the International Emergency Economic Powers Act (IEEPA). Furthermore, they were found to be doing business with American customers through their Binance.com platform, instead of Binance.us, which was meant to be a separate enterprise with strict anti-money laundering compliance.
Treasury Secretary Janet Yellen said, “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.”
The investigation into Binance began in 2018. In that period, CZ and his team were found to have repeatedly and knowingly violated these laws and attempted to cover them up. CZ directed employees to handle major American customers, which he called “VIPs” on Binance.com and to use encrypted communication methods with them. In July 2020, a user was identified as one of the “top contributors to illicit activity,” but was then given instructions on how to re-join the platform.
The settlement with the CFTC ends a case which began in March. The CFTC accused Binance of operating illegally in the United States, using a web of shell companies to evade compliance laws. CZ also knowingly allowed certain users to evade know-your-customer (KYC) requirements.
In June, the Securities and Exchange Commission sued Binance alleging it was misusing customer funds and siphoning to another company controlled by CZ called Merit Peak Limited. This allegation is strikingly similar to the FTX-Alameda scheme, which recently earned Sam Bankman-Fried a long prison sentence. Notably, the SEC was not a party to this settlement, suggesting this case could still be open.
CZ was the face of crypto for much of his tenure at Binance, through his $23 billion fortune and active Twitter account, where he frequently railed against FUD and even helped to instigate the collapse of FTX. He positioned himself and Binance as the lawful counterparts to SBF and FTX.
Binance is the largest cryptocurrency exchange, with $13 billion in 24-hour volume and $72 billion in asset according to CoinMarketCap. Binance’s BNB token fell 14% following the news. Bitcoin and Ethereum did not appear to be moved significantly in the immediate aftermath.
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