- Binance agrees to pay over $4 billion in DOJ settlement.
- CEO resigns and pleads guilty to violating the Bank Secrecy Act.
- DOJ states that Binance willfully violated US laws in pursuit of profits.
In a legal saga spanning most of the year, Binance has finally reached a resolution in one of its major legal battles in the US. On November 21st, the world’s largest exchange agreed on a settlement with US authorities, but at a major cost. The exchange was forced to “completely exit” the US, take a substantial financial hit, and make a drastic change in its leadership.
In a move that caught many by surprise, Changpeng “CZ” Zhao announced his resignation as CEO of Binance as part of the agreement between Binance and the U.S. Department of Justice (DOJ), which will also see Binance pay $4.3 billion.
Binance‘s DOJ Settlement and CZ’s Resignation
The cases against Binance reached a pivotal point on Tuesday, 21 November, as the exchange agreed to a staggering $4.3 billion settlement with the DOJ, CFTC, and U.S. Treasury. This agreement, resolving allegations of violating anti-money laundering laws, marks one of the largest penalties in the history of cryptocurrency legal cases.
Under the terms of the settlement, Binance will make a “complete exit’ from the US, and pay $1.81 billion within 15 months, with an additional $2.51 billion in asset forfeiture. Total penalties include resolutions with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), Office of Foreign Assets Control (OFAC), and the U.S. Commodity Futures Trading Commission (CFTC), and amount to a total of $4.3 billion.
In addition to the financial penalties, Binance is required to institute significant internal changes. A critical aspect of the settlement includes the appointment of an independent compliance monitor for a duration of three years. This monitor will oversee Binance’s adherence to regulatory standards.
The punitive action further extended to Binance CEO Changpeng “CZ” Zhao.
CZ Agrees to Pay $50M, Faces 18 Months in Prison
Binance’s CEO pled guilty to felony charges of violating the Bank Secrecy Act (BSA). He entered a plea in person earlier on Tuesday, 21 November, at the United States District Court for the Western District of Washington.
Following his plea, CZ was released from custody on a $175 million personal recognizance bond. He also posted an additional $15 million in a trust account and found two guarantors pledging $250,000 and $100,000, respectively.
Zhao is prohibited from breaking the law, tampering with victims or witnesses, and taking non-prescribed controlled substances. He is allowed to leave the U.S. but must return 14 days before his sentencing, scheduled for February 23, 2024. He has agreed to stay in Seattle until November 27, 2023, to allow time for legal discussions.
Prosecutors are seeking an 18-month prison sentence for Zhao. By pleading guilty pursuant to an agreement, Zhao has technically waived his right to appeal any sentence lower or equal to 18 months. The former CEO also agreed to pay $50M in fines from his personal assets.
Before the settlement was announced on November 21st, CZ officially resigned from his role at Binance. Binance has since announced the election of Richard Teng, its now-former Global Head of Regional Markets, in the interim CEO position.
CZ Ignored His Team’s Warnings On Money Laundering
The DOJ’s Attorney General Merrick B. Garland alleged that Binance willfully violated US federal law to pursue profit and growth. This includes enabling terrorist organizations, including the Hamas Brigades, Palestinian Islamic Jihad, and others.
The Attorney General disclosed that Binance enabled nearly $900 million in transactions between U.S. and Iranian users, in violation of US sanctions. The exchange also facilitated millions of dollars in transactions between U.S. users and those in Syria and in Russian-occupied Crimea, Donetsk, and Luhansk. Moreover, the DOJ also claims that Binance facilitated criminals to launder the proceeds from ransomware, darknet markets, scams, and websites selling child sexual abuse materials.
“By failing to comply with US law, Binance made it easy for criminals to move funds through its platform,” the Attorney General said in a joint press conference with Treasury Secretary Janet Yellen and Deputy Attorney General Lisa Monaco.
Deputy AG Monaco explained that CZ willfully disregarded his team’s warnings that the exchange doesn’t have basic anti-money laundering capabilities.
The Attorney General highlighted Binance’s involvement with the Russian darknet marketplace Hydra. Between August 2017 and April 2022, Binance processed about $106 million in bitcoin transactions from Hydra. He also stated that the exchange processed over $275 million in transactions from Bestmixer, a cryptocurrency anonymizing service, before it was shut down for money laundering.
“Using new technology to break U.S. laws does not make you a disruptor; it makes you a criminal,” underlined the Attorney General.
Binance will henceforth be required to file regular reports of suspicious activity to the DOJ, as well as all previous suspicious transactions that took place on the platform that had gone unreported. FinCEN will further appoint a monitor to oversee Binance’s compliance program over the next 3-5 years.
DOJ Forces Binance Out of the US
Perhaps the most significant penalty for Binance under this agreement is the exchange’s “complete exit” from the US market. This penalty resulted from Binance’s attempts to covertly serve US users while concealing their operations from US regulators.
The DOJ Attorney General Merrick B. Garland claims that CZ and other officials directed employees to encourage high-volume traders to conceal their US connections. While Binance publicly claimed that it blocked US users, internal reports attributed 16% of its total registered user base to the US. This was more than any other country on the platform.
The Attorney General asserted that “Binance removed the United States label and recategorized U.S. users with the label “UNKWN” – short for “unknown.” In October 2020, “UNKWN” users represented approximately 17% of Binance’s registered user base.”
Despite this order, Binance.US, the US affiliate operating as BAM Trading Services, will not be affected by Binance’s withdrawal from the US market as it is a registered money services business.
DOJ’s Case Against Binance
The U.S. DOJ’s investigation into Binance, initiated in 2018, has been focused on allegations of the crypto exchange’s non-compliance with U.S. anti-money laundering laws and sanctions. The investigation includes charges of unlicensed money transmission, money laundering conspiracy, and criminal sanctions violations.
Binance previously disputed the allegations, calling the calculations of illicit funds inaccurate and describing the accounts of its compliance controls as “outdated.” The exchange claims it is committed to “driving higher industry standards” and improving its ability to detect illegal crypto activity on its platform.
The settlement involves the DOJ and Commodities Futures Trading Commission. However, the Securities and Exchange Commission (SEC), with its own charges against Binance, opted not to participate in the settlement. This means that the SEC’s case over operating an unlicensed exchange still hangs over Binance.
On the Flipside
- Earlier, legal experts questioned the DOJ-Binance settlement. Several found it unusual for Zhao to agree to pay such a significant sum and still face criminal charges.
- Conversely, some market commentators, including Mike Novogratz, view the settlement as a bullish development for Binance. They argue that resolving these legal issues removes a considerable risk hanging over the exchange.
Why This Matters
The Binance-DOJ settlement is a landmark moment in the history of cryptocurrency regulation. It also signals a shift towards greater accountability and oversight in the crypto industry.
Read more about the market’s reaction to the Binance settlement:
Market Conflicted as CZ Quits and Binance Settles with DOJ
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