Binance founder agrees to plead guilty to violating money laundering rules

Changpeng Zhao, the founder of Binance, the world’s largest cryptocurrency exchange, agreed to plead guilty to money laundering violations, according to court documents made public Tuesday, a stunning blow to the most powerful and influential figure in the global crypto industry.

Binance itself also agreed to plead guilty and pay $4.3 billion in fines and restitution, according to documents filed in federal court in Seattle.

As part of his guilty plea, Mr. Zhao agreed to pay a $50 million fine and will also step down from his role as CEO of the company. Binance will accept the appointment of a monitor as part of its plea deal with federal prosecutors, and Mr. Zhao will be barred from being involved in Binance’s business until three years after the monitor’s appointment.

The court papers, dated Nov. 20, say federal prosecutors filed criminal charging documents against both Binance and Mr. Zhao on Nov. 14. Mr Zhao’s lawyers could not be reached for comment. A Binance spokesperson did not respond to a request for comment.

The court documents detail a broad effort by Mr. Zhao and other senior Binance employees to circumvent laws, including parts of the Bank Secrecy Act, that require financial institutions and their employees to discover the true identities of their customers and do business with criminals to avoid. or people excluded by economic sanctions, and to register US-based companies with regulators. Customers from Iran, Cuba and Syria – all of them face sanctions – had access to the Binance platform.

Authorities said Mr. Zhao knew that Binance’s efforts to prevent people from the sanctioned countries from doing business on the exchange were inadequate. Federal prosecutors have specifically accused Binance of conspiring to operate an unlicensed money transmission business, violating federal bank secrecy laws and violating federal sanctions laws.

In addition to the prohibited foreign transactions, Binance did business with companies in the United States, although such customers were not intended to be on the Binance.com platform. Instead, another platform – Binance.US, which Mr. Zhao also owned – was needed to handle the business and adhere to the country’s anti-money laundering laws. But Mr. Zhao and other Binance employees believed it would be better if the top cryptocurrency exchange handled large customers, the lawsuits say.

According to the documents, Mr. Zhao, commonly known as CZ, personally tried to conceal Binance’s dealings with large U.S.-based clients — who were referred to as VIPs and handled by a special manager — to “leave no trouble for U.S. regulatory authorities cause. issues.”

The filing cited a June 2019 phone conversation in which Mr. Zhao advised other Binance employees to talk to US-based VIP clients through methods such as phone calls that would leave “no trace” of the interactions.

Binance also offered some key customers the chance to regain access to its main trading platform even after kicking them out over concerns they were involved in criminal activity, the court papers said. The papers cited a July 2020 incident in which Binance employees identified a particular user as one of the “key contributors to illegal activities,” locked the user out of the platform, and then discussed how the user could receive instructions on how to sign up for a new Binance account without revealing any previously identified troublesome connections.

For the relatively young and fast-growing crypto world, Tuesday’s events were a monumental development, given Binance’s global reach and Mr. Zhao’s prominent role as an industry leader. At times, Binance has processed two-thirds of all digital currency transactions, making it an essential power broker and intermediary in the crypto world.

Long thought this was the richest man in crypto, Mr. Zhao has done that has amassed over 8.5 million followers on X, the platform formerly known as Twitter.

Mr. Zhao’s guilty plea represented something of a one-two punch from the Justice Department. Earlier this month, crypto entrepreneur Sam Bankman-Fried was convicted of fraud during a criminal trial following the collapse of his FTX crypto exchange.

Since FTX’s implosion a year ago, federal authorities have criminally charged a parade of crypto executives, and the Securities and Exchange Commission has filed lawsuits against some of the industry’s largest companies, including Coinbase, the publicly traded U.S. exchange. On Monday, the SEC sued Kraken, another crypto exchange, accusing it of operating without proper registration and commingling customer deposits with its own company assets.

The financial portion of the settlement with Binance approximates the roughly $5 billion that Goldman Sachs paid to authorities in the United States and around the world in 2020 to resolve foreign bribery allegations arising from the 1MDB sovereign wealth fund scandal . But the fine is significantly less than the $8.9 billion BNP Paribas paid federal prosecutors in 2014 for violating U.S. sanctions rules.

Before the settlement, regulators had taken a series of steps this year to sanction Binance. In March, the Commodity Futures Trading Commission filed a civil suit against the company 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 mishandling customer funds and lying to regulators. Notably, the SEC, which is committed to regulating digital assets such as stocks or bonds, was not a party to the settlement, according to the documents. The regulator did not respond to a request for comment on Tuesday.

The drumming of enforcement actions has hurt Binance’s business. After the SEC lawsuit, banks cut off access to Binance.US, forcing the company to freeze much of its trading activity. A series of top executives left.

The second. also said that Binance transferred billions of dollars of customer funds to a separate company, Merit Peak Limited, which was controlled by Mr. Zhao.

This accusation reflects the collapse of FTX, once Binance’s biggest international rival. This month, Mr. Bankman-Fried was convicted on charges that he embezzled billions in client funds and used the money to fund campaign donations and other extravagant expenses. When FTX collapsed last year, Mr. Zhao positioned himself as the compliant face of the crypto industry after his tweets helped set off the chain of events that led to the implosion.

Publicly, Mr. Zhao has often dismissed negative news stories by labeling them “FUD,” or fear, uncertainty and doubt, the acronym the crypto industry has long used to mock skeptics and critics.

He also hired a larger compliance staff, arguing that Binance had learned from its mistakes and matured. In January, a former federal prosecutor, Noah Perlman, was named Binance’s new Global Compliance Chief.

Yet cracks are starting to appear. This year, Binance’s stock in the crypto trading market has risen baptized amid the onslaught of regulators. And in July, several of his top executives, including his chief strategy officer And a high-ranking compliance officerannounced they were leaving the company.

Alan Rappeportreporting contributed.