In a groundbreaking development, Binance Holdings Ltd and its CEO, Changpeng Zhao, have admitted guilt to charges of anti-money laundering and violating US sanctions. This landmark settlement, one of the largest in US corporate history, follows an extensive investigation by the Justice Department, Treasury Department, and the Commodity Futures Trading Commission.
Charges and Massive Fine
Binance, a key player in the cryptocurrency exchange space, has agreed to a staggering $4.3 billion settlement. This sum includes a $1.8 billion criminal fine and forfeiting $2.5 billion. The charges leveled against the platform encompass operating an unlicensed money-transmitting business, money-laundering, and breaching US sanctions. Notably, these violations involve facilitating transactions with known terrorist groups such as Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda, and ISIS.
Changpeng Zhao, commonly known as CZ, will pay a significant $50 million fine and step down as CEO. Despite facing a potential 10-year prison sentence, CZ is anticipated to serve no more than 18 months under a plea deal, a departure from the severe penalties faced by other figures in the cryptocurrency space.
Treasury Department Findings
The Treasury Department disclosed that Binance failed to prevent and report suspicious transactions involving terrorists, allowing illicit funds to flow through its platform. During the Israel-Hamas conflict, Binance facilitated transactions with designated terrorist organizations. Court filings also revealed that Binance permitted over 1.1 million transactions, totalling more than $898 million, between US and Iranian customers, a direct violation of US sanctions.
The colossal $4.3 billion fine will be distributed among various agencies, with $3.4 billion allocated to the Treasury Department’s Financial Crimes Enforcement Network and $968 million to its Office of Foreign Assets Control. This distribution aims to address violations of the Bank Secrecy Act and sanctions.
Market Response and Leadership Change
Unsurprisingly, the cryptocurrency market responded swiftly, with Binance’s associated cryptocurrency, BNB, dropping approximately 5.2% following the news. Richard Teng has been appointed as Zhao’s successor as part of the settlement. Binance has committed to enhancing its compliance program and having an independent monitor for three years.
Allegations of Deliberate Evasion
The Justice Department accuses Binance and its top executives of deliberately evading US laws governing the global flow of illicit funds. The filing indicates that from August 2017 to October 2022, Binance engaged in a calculated effort to profit from the US market without implementing required controls.
Zhao’s Court Appearance
During his court appearance, Zhao expressed a desire to take responsibility and close this chapter of his life. While facing a maximum sentence of 10 years and fines up to $500,000, Zhao is expected to serve no more than 18 months, pending sentencing. His bond was set at $175 million, and he is free to return to his home in the United Arab Emirates while awaiting sentencing.
Industry Impact and Regulatory Scrutiny
This resolution against Binance, the world’s largest cryptocurrency exchange, highlights the intensified scrutiny faced by the cryptocurrency industry. Binance’s market share, which soared to over 60% globally, has declined to less than 44% this month. The Justice Department’s recent actions against FTX co-founder Sam Bankman-Fried and ongoing lawsuits against Binance by the CFTC and SEC signal a broader crackdown on illicit activities within the cryptocurrency realm.