Crypto king falls: Binance CEO pleads guilty, company hit with $US4.3b in penalties

Binance and its chief executive officer Changpeng Zhao pleaded guilty to criminal charges for anti-money laundering and US sanctions violations, including allowing transactions with Hamas and other terrorist groups, under a sweeping deal with the Justice department designed to keep the company operating.

Binance agreed to plead guilty to criminal charges and pay over $US4.3 billion ($6.6 billion) in penalties. Zhao, who agreed to step down and pay a $US50 million fine as part of the settlement, appeared in court in Seattle to plead guilty. The deal, which includes the Treasury Department and the Commodity Futures Trading Commission, ends a years-long investigation into the cryptocurrency exchange.

Binance founder Changpeng Zhao was handed a $US50 million fine as part of the settlement.Credit: Bloomberg

In a document unsealed on Tuesday in the US, Binance was charged with three counts, including money laundering violations, conspiracy to conduct an unlicensed money transmitting business, and US sanctions violations. Binance is paying a criminal fine of $US1.8 billion and forfeiting $US2.5 billion, according to court filings.

Binance’s violations included failure to prevent and report suspicious transactions with terrorists, including Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda, and the Islamic State of Iraq and Syria, according to the Treasury department. The announcement 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 $US898 million, involving customers in Iran, according to the court filing.

“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now its paying one of the largest corporate penalties in US history,” Attorney General Merrick Garland said in a press release.

Money from the fine will be split among DOJ, CFTC and other agencies. It includes $US3.4 billion to the Treasury Department’s Financial Crimes Enforcement Network and $US968 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 Yellen said in a press release. “Its willful failures allowed money to flow to terrorists, cybercriminals and child abusers through its platform.”

The settlement negotiated between the two sides will resolve all allegations of criminal wrongdoing. Bloomberg News reported the settlement on Monday.

Binance chose to “prioritise growth over compliance with US legal requirements,” allowing it to conduct billions of dollars in transactions without gathering required information on customers or monitoring transactions, the US said.

“Its willful failures allowed money to flow to terrorists, cybercriminals and child abusers through its platform.“: Treasury Secretary Janet YellenCredit: AP

BNB, a cryptocurrency tied to the Binance ecosystem, slipped about 5.2 per cent following the news. The token had hit a five-month high earlier in the day on the news that the DOJ would soon confirm its settlement with the exchange.

Garland and Yellen held a press conference to announce details of the settlement.

Criminal charges

The Justice Department accused the company — as well as top executives, including Zhao — of taking steps to conceal that it was dodging US 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 US market without implementing controls required by law.

Binance “chose not to comply with US legal and regulatory requirements because it determined that doing so would limit its ability to attract and maintain US users,” according to the charging document.

Binance and its senior managers, from the company’s inception, tracked and monitored the user growth in the US, according to the complaint, which included a company graphic from 2017 that showed more than 23 per cent of Binance’s users were from the US — a larger share than any other country.

The government said Zhao was well aware of the presence of US customers on the international exchange, writing in 2019 that if Binance blocked US customers from day one it “will be not as big as we are today.”

Zhao wrote that it was “better to ask for forgiveness than permission” and described the situation as a “grey zone.”

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.

Zhao and fallen FTX founder Sam Bankman-Fried were initially friendly rivals, but their relationship deteriorated.Credit: Bloomberg

“I want to close the issue, I want to take responsibility and close this chapter of my life,” Zhao told the court during the hearing. Zhao said he was “a little bit scared” to come to the US to face his plea, but said he was reassured by the court’s thoroughness. “I will return.”

Zhao faces a maximum sentence of 10 years and fines up to $US500,000, plus any profits he made from the alleged scheme. His lawyers said in court on 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, Judge Tsuchida said during the plea hearing.

Crypto crackdown

The resolution against the world’s largest cryptocurrency exchange and its top leader represents one of the largest penalties imposed within the cryptocurrency industry, which has been facing withering scrutiny from the Justice Department, other government agencies and lawmakers.

The company agreed to pay a fine of more than $US4 billion.Credit: Bloomberg

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 per cent 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 per cent this month, according to researcher CCData.

The cryptocurrency industry has been marred by scandals and market meltdowns. Sam Bankman-Fried, the 31-year-old founder of the failed cryptocurrency brokerage FTX, was convicted earlier this month of fraud for stealing at least $US10 billion from customers and investors.

Of his many depictions in the cryptocurrency industry, Zhao was best known as the chief rival to Bankman-Fried.

Zhao and Bankman-Fried were originally friendly competitors in the industry, with Binance investing in FTX when Bankman-Fried launched the exchange in 2019. However, the relationship between the two deteriorated, culminating in Zhao announcing he was selling all of his cryptocurrency investments in FTX in early November 2022. FTX filed for bankruptcy a week later.

At this trial and in later public statements, Bankman-Fried tried to cast blame on Binance and Zhao for allegedly orchestrating a run on the bank at FTX.

Both the CFTC and 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.

Bloomberg, AP

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