Binance founder and chief executive Changpeng Zhao has pleaded guilty to criminal charges and resigned from his position as part of a $4.3 billion settlement with the US Department of Justice, as federal prosecutors revealed sweeping allegations against the world’s biggest cryptocurrency exchange.
The company admitted it engaged in anti-money laundering, unlawful money transmitting and sanctions breaches, the department said.
It has agreed to pay more than $4 billion to resolve the department’s investigation into breaches of the Bank Secrecy Act and the International Emergency Economic Powers Act as well as failure to register as a money transmitting business.
Mr Zhao, a Canadian citizen, is also accused of failing to maintain an effective anti-money laundering programme, in breach of the Bank Secrecy Act.
Binance turned a “blind eye” to its legal obligations in the pursuit of profit and its wilful failures allowed money to flow to terrorists, cyber criminals and child abusers through its platform, US Treasury Secretary Janet Yellen said.
“Today’s historic penalties and monitorship to ensure compliance with US law and regulations mark a milestone for the virtual currency industry,” she added.
Binance’s guilty plea is part of the co-ordinated resolutions with the department of treasury’s Financial Crimes Enforcement Network and Office of Foreign Assets Control and the US Commodity Futures Trading Commission.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed … now it is paying one of the largest corporate penalties in US history,” said US Attorney General Merrick Garland.
“The message here should be clear: using new technology to break the law does not make you a disrupter, it makes you a criminal.”
Launched in 2017, Binance quickly became the largest cryptocurrency exchange in the world, with the greatest share of its customers coming from the US.
As it was serving US customers, the company was required to register with FinCEN as a money services business and to enact an effective anti-money laundering programme.
“Binance admitted to prioritising growth and profits over compliance with [the] US law … [it] chose not to comply with the US law and failed to implement controls and procedures to prevent money laundering,” according to court documents.
It did not enact measures that “would have prevented [the] US customers from conducting transactions with customers in sanctioned jurisdictions, despite knowing that the system it used to match customers for transactions would necessarily cause transactions in violation of IEEPA”.
In 2019, Binance announced that it would block US customers and launched a separate exchange, binance.us. It focused on retaining “valuable VIP customers, which were responsible for a large portion of Binance’s trading volume and revenue”.
“These VIP customers were critical to Binance’s business because they helped provide the necessary liquidity to facilitate trades of digital assets,” court documents said.
Binance has agreed to forfeit more than $2.5 billion and to pay a criminal fine of more than $1.8 billion for a total financial penalty of $4.3 billion, as part of the plea agreement.
It has also agreed to retain an independent compliance monitor for three years and enhance its anti-money laundering and sanctions compliance programmes.
The court said Mr Zhao knew that US users were essential to Binance’s growth and were a significant source of revenue. It said he also knew that an effective anti-money laundering programme would include KYC – or know your customer – protocols that would mean that some customers would choose not to use Binance.
He told employees it was “better to ask for forgiveness than permission”, and prioritised Binance’s growth over compliance with US law, according to court documents.
Without an effective anti-money laundering programme, Binance permitted transactions between US users and users in jurisdictions subject to US sanctions. These illegal transactions were a “clear and foreseeable result of [Mr] Zhao’s decision to prioritise Binance’s profit and growth over compliance with the BSA”.
The cryptocurrency industry has been marred by scandals and market meltdowns in recent years.