CEO of world’s largest crypto exchange pleads guilty and agrees to $50-million fine
Binance Holdings Ltd. Chief Executive Changpeng Zhao pleaded guilty to criminal charges of money laundering and U.S. sanctions violations, including allowing transactions with Hamas and other terrorist groups, under a sweeping deal worked out with the Justice Department designed to keep the company operating.
Binance agreed to plead guilty to a criminal charge and pay $4.3 billion in penalties. Zhao, who agreed to step down and pay a $50-million fine as part of the settlement, appeared federal court in Seattle on Tuesday to enter his plea. The deal ends a years-long investigation into the cryptocurrency exchange.
In a document unsealed Tuesday, Binance was charged with three counts: money laundering, conspiracy to conduct an unlicensed money transmitting business, and violating U.S. sanctions. Binance is paying a criminal fine of $1.8 billion and forfeiting $2.5 billion, according to the court filing.
Binance’s violations included failure to prevent and report suspicious transactions with terrorists, including Hamas’ Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda and the Islamic State of Iraq and Syria, according to the Treasury Department. The settlement comes as Israel and Hamas have been embroiled in a war that broke out more than six weeks ago.
Binance allowed at least 1.1 million transactions, worth more than $898 million, involving customers in Iran, according to the court filing.
The lawsuit lists 13 charges against the firm and lays out the extent to which the firm’s owners knew of the alleged legal violations.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now it’s paying one of the largest corporate penalties in U.S. history,†Atty. Gen. Merrick Garland said in a news release.
Money from the Binance fine will be split among the Justice Department, the Commodity Futures Trading Commission and other agencies. It includes $3.4 billion to the Treasury Department’s Financial Crimes Enforcement Network and $968 million to its Office of Foreign Assets Control over Bank Secrecy Act and sanctions violations.
“Binance turned a blind eye to its legal obligations in the pursuit of profit,†Treasury Secretary Janet L. Yellen said in a news release. “Its willful failures allowed money to flow to terrorists, cybercriminals and child abusers through its platform.â€
Bloomberg News reported the settlement Monday.
Binance chose to “prioritize growth over compliance with U.S. legal requirements,†allowing it to conduct billions of dollars in transactions without gathering required information on customers or monitoring transactions, the U.S. said.
BNB, a cryptocurrency tied to the Binance ecosystem, slipped about 5.2% after the report. The token had hit a five-month high earlier in the day on the news that the Justice Department would soon confirm its settlement with the exchange.
Garland and Yellen held a news conference Tuesday to announce details of the settlement.
Criminal charges
The Justice Department accused the company — as well as top executives — of taking steps to conceal that it was dodging U.S. laws. The filing states that from about August 2017 until October 2022, Binance and Zhao were involved in a “deliberate and calculated effort†to profit from the U.S. market without implementing controls required by law.
Binance “chose not to comply with U.S. legal and regulatory requirements because it determined that doing so would limit its ability to attract and maintain U.S. users,†according to the charging document.
Binance and its senior managers, from the company’s inception, tracked and monitored the user growth in the U.S., according to the complaint, which included a company graphic from 2017 that showed more than 23% of Binance’s users were from the U.S. — a larger share than from any other country.
The government said Zhao was well aware of the presence of U.S. customers on the international exchange, writing in 2019 that if Binance blocked U.S. customers from Day One it “will be not as big as we are today.â€
Zhao wrote that it was “better to ask for forgiveness than permission†and described the situation as a “grey zone.â€
After the monthlong trial, jurors rejected Bankman-Fried’s claim during four days on the witness stand in Manhattan federal court that he never committed fraud or meant to cheat customers.
In court, Zhao wore a dark suit and light blue tie and spent most of the hearing seated with his hands clasped. Judge Brian Tsuchida ruled Zhao would be released and was free to return to his home in the United Arab Emirates while awaiting sentencing.
“I want to close the issue, I want to take responsibility and close this chapter of my life,†Zhao told the court. Zhao said that he was “a little bit scared†to come to the U.S. to face his plea but that he was reassured by the court’s thoroughness. “I will return.â€
Zhao faces a maximum prison sentence of 10 years. His lawyers said in court Tuesday that his sentencing will be delayed by six months. Zhao’s agreement includes a waiver of his right to appeal, provided that his sentence doesn’t exceed 18 months, Tsuchida said during the hearing.
Crypto crackdown
The resolution against the world’s largest cryptocurrency exchange and its CEO represents one of the largest penalties imposed in the cryptocurrency industry, which has been facing withering scrutiny from the Justice Department, other agencies and lawmakers.
Binance, which exploded onto the crypto scene in 2017 and almost immediately took on and surpassed larger rivals, saw its market share surge to more than 60% worldwide after the fall of FTX in November 2022. Since then, its combined market share for spot crypto and derivatives has declined to less than 44% this month, according to researcher CCData.
The Justice Department recently prosecuted FTX co-founder Sam Bankman-Fried in New York for allegedly orchestrating a multibillion-dollar misappropriation of customer funds that led to the cryptocurrency exchange’s collapse. Bankman-Fried was convicted of fraud.
Both the Commodity Futures Trading Commission and the Securities and Exchange Commission have sued Binance and Zhao alleging a range of violations, including mishandling customer funds and allowing Americans to illegally access the platform.
Zhao worked at Bloomberg, the parent company of Bloomberg News, from 2002 to 2005.
Binance was founded in Shanghai but says it does not have a headquarters now and has declined to state the location of its main exchange.
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