The head of Binance, Changpeng Zhao, will plead guilty to criminal charges and step down as the company’s CEO as part of a $4.3 billion settlement with the Department of Justice, according to court documents. The plea settlement with the government resolves a multi-year investigation into the world’s largest crypto exchange.
Zhao and others are charged with violating the Bank Secrecy Act by failing to implement an effective anti-money laundering program and for violating controls -US economic bonds “in a deliberate and calculated attempt to profit from the US market without implementing controls required by US law,” according to the Department of Justice.
Zhao said in a post on X, formerly known as Twitter, that he had “made mistakes” and “must take responsibility,” adding that Richard Teng, the former head of global regional markets, had been ‘ company, named as the new CEO of Binance.
The action against Binance and its founder was a joint effort by the Department of Justice, the Futures Trading Commission and the Treasury Department. The Securities and Exchange Commission was conspicuously absent.
Treasury Secretary Janet Yellen said in a press release Tuesday that the exchange allowed illegal actors to make more than 100,000 transactions that supported activities such as terrorism and illegal narcotics. And it allowed more than 1.5 million virtual currency transactions that violated US sanctions.
It also authorized transactions related to terrorist groups such as Hamas Al-Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda and ISIS, Yellen said in the press release, noting that Binance “did not submit one suspicious activity report ever.”
US Attorney General Merrick Garland said at a press conference Tuesday afternoon that the fine was “one of the largest penalties we’ve ever received.” Yellen called it the largest executive action in Treasury history.
“Using new technology to break the law doesn’t make you crazy. It makes you a criminal,” Garland continued.
“Binance prioritized its profits over the safety of the American people,” he said.
The former Binance chief will personally plead guilty to violating and causing a financial institution to violate the Bank Secrecy Act, according to the plea agreement. The DOJ also recommends that the court fine Zhao $50 million.
Zhao was scheduled to appear before Judge Brian Tsuchida for a hearing in a Seattle courtroom at 10:00 a.m. Pacific Time (1:00 p.m. ET).
Binance will continue to operate but with new ground rules. The company must maintain and enhance its compliance program to ensure that its business is in line with US anti-money laundering standards. The company must hire an independent compliance auditor.
The case against Binance, which was unsealed as of Tuesday afternoon, shows the exchange faces three criminal charges, including conducting an unauthorized money transmission business, violating International Emergency Economic Powers Act, as well as a conspiracy charge.
Binance has agreed to pay $2.5 billion to the government, as well as pay a fine of $1.8 billion.
The US DOJ said in its filing on Tuesday that Binance “knowingly and willingly” caused the provision of services to Iran, in violation of US sanctions. It comes after a report that Binance used billions worth of transactions from Iran.
“Let me be clear: we are also sending a message to the broader virtual currency industry, today and in the future,” Yellen wrote in a press release.
The settlement comes just after FTX founder Sam Bankman-Fried was found guilty of multiple criminal counts of fraud and conspiracy after just three hours of jury deliberation. For a month-long, high-profile trial involving nearly 20 witnesses and hundreds of exhibits, experts told CNBC they’ve never seen a decision come so quickly.
Zhao Changpeng, founder and CEO of Binance, speaks at the Blockchain Week Conference in Paris, France, on Wednesday, April 13, 2022.
Benjamin Girette | Bloomberg | Getty Images
CNBC reached out to Zhao for comment but did not immediately hear back. Binance did not respond to multiple requests from CNBC for comment.
The charges follow civil charges brought earlier this year by the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Binance has been at the center of intense regulatory scrutiny of how it operates, with officials in multiple jurisdictions expressing concerns about the company’s gung-ho attitude towards launching in certain markets even when not authorized to do so, and accusations of being involved in illegal activities. such as money laundering and securities fraud.
The Securities and Exchange Commission targeted the company with a wide-ranging lawsuit in June, alleging that Binance ran an illegal securities exchange and mishandled customer funds. The SEC hit rival exchange Coinbase with a similar lawsuit soon after, alleging that it operates as an unauthorized securities exchange, broker and clearing agency.
And just this week, the SEC sued Kraken, alleging that the exchange was commingling $33 billion in client crypto assets with the company’s own assets, creating the potential for significant risk loss to its users.
In the 13 charges brought by the SEC against Binance, the agency accused Binance of siphoning billions of dollars in customer funds with Binance’s own funds, similar to charges made against the crypto exchange FTX a is now bankrupt. SEC Chairman Gary Gensler said, “Zhao’s and Binance’s organizations are engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
Started by the Chinese-born entrepreneur in 2017, Binance went from a relatively obscure name to a major force in crypto in a matter of weeks. To this day, Binance remains the largest crypto exchange in the world, processing billions of dollars in trading volume every year. The exchange took an aggressive approach to growth, expanding rapidly across the globe often without obtaining approval first.
While its holding company is based in the Cayman Islands, Binance does not have a single global headquarters and Zhao has often resisted making such announcements, saying he wants the senior -a platform running on a “decentralized” operating model.
In 2021, the UK Financial Conduct Authority banned Binance’s UK unit from operating in the country, saying it was not authorized to carry out regulated activities. Recently, Binance scrapped plans to pursue a full UK license after the regulator said its know-your-customer and anti-money laundering controls did not meet its requirements.
In the CFTC’s complaint, the regulator alleged that Binance, Zhao, and the company’s former compliance officer, Samuel Lim, operated an “illegal” exchange, ran a “sham” compliance program, and allegedly violated The Trade in Goods Act includes laws “designed to prevent and detect money laundering and terrorist financing.”
Binance and Zhao filed a motion in July to dismiss the CFTC suit. The US arm of the exchange is also pushing back against the SEC’s lawsuit, filing a protective order against what it calls the SEC’s “fishing expedition.”
Of particular concern to the crypto industry is the impact of the agency’s crackdown on crypto for multiple tokens and blockchain — not just the exchanges. The SEC maintains that several of the tokens that Binance and Coinbase offer on their platforms – such as Solana’s sol, Cardano’s ada, and Polygon’s matic – are securities that should be registered with the organization.
– CNBC’s Kevin Breuninger contributed to this report.
