Changpeng Zhao, founder of Binance, the world’s largest cryptocurrency exchange, pleaded guilty to money laundering violations, the government said on Tuesday, a blow to the most powerful and influential figure in the global crypto industry.
Binance itself also pleaded guilty and agreed to pay $4.3 billion in fines and restitution to the government, according to federal authorities. Under the agreement, Binance reached agreements with the Department of Justice, the Department of the Treasury and the Commodity Futures Trading Commission, which have been investigating the company for years.
As part of his guilty plea, Mr. Zhao agreed to pay a $50 million fine and resign as CEO of the company. Mr. Zhao faces up to 18 months in prison under federal sentencing guidelines, but prosecutors are keeping open the possibility of seeking a harsher sentence, according to senior Justice Department officials.
Binance, as part of its own plea deal with federal prosecutors, will agree to the appointment of a government monitor to oversee the business. Mr. Zhao is banned from any involvement in Binance until three years after he is appointed supervisor, court documents show.
Mr. Zhao and a Binance representative pleaded guilty in federal court in Seattle. in a statementBinance said the settlement recognized “our company’s liability for historical and criminal compliance violations.” The company said Richard Teng, a senior executive, would take over as chief executive, but that Zhao would remain “available for consultation on historical areas of our business.”
Mr. Zhao said in X., the platform formerly known as Twitter, which had “made mistakes” and “must take responsibility.” But he also said that he hoped to take a break from his grueling schedule and that he planned to make some “passive investments” in various crypto projects.
For the relatively young and rapidly growing crypto world, Binance and Mr. Zhao’s guilty pleas were a monumental development. At times, Binance has processed two-thirds of all digital currency transactions, making it a vital power broker and broker in the world of cryptocurrencies. For a long time it was believed that he was the richest man In crypto, Mr. Zhao is the industry’s most prominent and closely followed champion, with more than 8.5 million followers in X.
The guilty pleas completed something of a double whammy by the Justice Department. This month, disgraced cryptocurrency tycoon Sam Bankman-Fried was found guilty of fraud in a criminal trial stemming from the collapse of his FTX cryptocurrency exchange.
The actions against Binance and Zhao were announced at a press conference in Washington attended by Treasury Secretary Janet L. Yellen and Attorney General Merrick Garland. Zhao and other executives “engaged in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law,” Garland said.
Since the implosion of FTX a year ago, federal authorities have criminally charged a cavalcade of cryptocurrency executives, and the Securities and Exchange Commission has filed lawsuits against some of the largest companies in the industry, including Coinbase, the US exchange which is listed on the stock exchange. On Monday, the SEC sued Kraken, another crypto exchange, accusing it of operating without proper registration and of commingling customer deposits with its own corporate assets.
Court documents made public on Tuesday described an extensive effort by Mr. Zhao and other top Binance employees to evade laws, including parts of the Bank Secrecy Act, which require financial institutions and their employees to know the true identities of their customers, avoid doing business with criminals or people banned by economic sanctions, and register any US-based business with regulators. Customers from Iran, Cuba and Syria, all of whom face sanctions – were able to access the Binance platform, according to court documents.
At the press conference, Treasury officials noted that Binance had not instituted programs to report suspicious transactions involving terrorist groups, including Hamas in the Gaza Strip, Al Qaeda, and ISIS. “Binance was allowing illicit actors to transact freely, supporting activities ranging from child sexual abuse to illegal narcotics and terrorism,” Yellen said.
Authorities also said that Mr. Zhao knew that Binance’s efforts to prevent people in sanctioned countries from doing business on the exchange were inadequate. Prosecutors specifically accused Binance of conspiring to run an unlicensed money transmission business and violating banking and sanctions laws.
In addition to the prohibited foreign transactions, Binance did business with U.S.-based companies, even though it was not supposed to have such clients on its Binance.com platform, authorities said. Instead, a different platform, Binance.US, which Zhao also owned, was needed to handle that business and comply with the country’s anti-money laundering laws.
But Mr. Zhao and other Binance employees believed it would be better for the leading cryptocurrency exchange to handle large clients, according to court documents.
According to the documents, Mr. Zhao, widely known as CZ, personally sought to conceal Binance’s dealings with large US-based clients, who were referred to as VIPs and managed by a special manager, so “that U.S. oversight agencies do no harm.” clouds.”
The filing cited a June 2019 call in which Zhao recommended other Binance employees speak to US-based VIP clients using methods such as phone calls that would leave “no trace” of the interactions.
Binance also offered some major clients the opportunity to regain access to its main trading platform even after being banned over fears they were involved in criminal activity, according to court documents. The documents cited a July 2020 incident in which Binance employees identified a particular user as one of the “major contributors to illicit activities,” banned the user from accessing the platform, and then discussed instructing the user on how to open a new Binance account.
A Binance compliance employee said in a written communication that the company had an open door to people laundering drug money, according to the government. “Nowadays, laundering drug money is very difficult,” the employee wrote. “Come to Binance, we have cake for you.”
The penalty in the Binance deal is one of the largest ever imposed by the US government against a financial company. It’s close to the roughly $5 billion Goldman Sachs paid to authorities in the United States and around the world in 2020 to resolve foreign bribery allegations. But it falls short the 8.9 billion dollars that BNP Paribas paid federal prosecutors in 2014 for violating US sanctions rules.
Before the deal, regulators had taken action this year to penalize Binance. In March, the CFTC filed a civil lawsuit against the company and Mr. Zhao, accusing them of violating financial rules designed to protect American investors.
Then in June, the Securities and Exchange Commission accused Binance and Mr. Zhao of mishandling customer funds and lying to regulators. Notably, the SEC, which is intent on regulating digital assets like stocks or bonds, was not a party to Tuesday’s deal. The agency did not respond to a request for comment.
In its lawsuit against Binance, the S.EC. He said the company transferred billions of dollars in client funds to a separate company, Merit Peak Limited, which was controlled by Mr. Zhao.
That accusation echoed the collapse of FTX, once Binance’s biggest international rival. This month, Bankman-Fried, the founder of FTX, was convicted of embezzling billions in client funds, using the money to finance campaign donations and other extravagant expenses. After his own tweets helped trigger the chain of events that led to FTX’s implosion last year, Zhao presented himself as the docile face of the crypto industry.
The pace of enforcement actions this year has hurt Binance’s business. After the SEC lawsuit, banks cut off access to Binance.US, forcing the company to freeze much of its trading activity. Several senior executives soon left.
In public, Zhao has often dismissed negative news by labeling it “FUD,” or fear, uncertainty and doubt, the abbreviation the crypto industry has long used to mock skeptics and critics.
It also hired a larger compliance staff, and in January, a former federal prosecutor, Noah Perlman, was named Binance’s new head of global compliance.
Still, cracks were showing. This year, Binance’s participation in the cryptocurrency trading market has submerged amidst the onslaught of regulators. And in July, several of his top executives, including his Strategy Director and a senior compliance officerannounced that they were leaving the company.
Mr. Zhao’s fate remains unclear. His sentencing is months away. Meanwhile, his bail was set at $175 million secured by $15 million in cash, and a federal judge allowed him to return to the United Arab Emirates, where he has been living this year.
In his post on Tuesday, he said he didn’t see himself running a startup again.
“If there are listeners, I may be willing to coach/mentor a small number of future entrepreneurs, privately,” he wrote. “At least I can tell them what not to do.”
Alan Rappeport contributed reports.