The U.S. government has made a significant impact on Binance, the biggest cryptocurrency exchange globally. On Tuesday, the founder and CEO Changpeng Zhao admitted his guilt to a felony charge for not stopping money laundering on the platform and agreed to pay a $4 billion settlement.
Zhao resigned from his position as the CEO of the company and Binance acknowledged breaking the Bank Secrecy Act and potentially violating sanctions programs. This included their failure to establish reporting systems for suspicious transactions.
U.S. Attorney General Merrick Garland stated that utilizing innovative technology to violate the law does not classify as being a disruptor, but rather as a criminal act. He also acknowledged the settlement as one of the most substantial corporate fines in the country’s past.
As per the terms of the settlement, the U.S. Treasury has declared that Binance will undergo a five-year period of supervision and adhere to strict compliance measures, including fully withdrawing from operations in the United States. Binance is registered as a limited liability company in the Cayman Islands.
The world of cryptocurrency has been plagued by controversies and financial collapses.
Zhao was perhaps best known as the chief rival to Sam Bankman-Fried, the 31-year-old founder of the FTX, which was the second-largest crypto exchange before it collapsed last November. Bankman-Fried was convicted earlier this month of fraud for stealing at least $10 billion from customers and investors.
On Tuesday, Zhao admitted fault in a federal court in Seattle for not maintaining an efficient program to prevent money laundering.
Judge Tsuchida asked Zhao to confirm his understanding of the plea deal, stating, “At one point, you were aware that you did not have proper controls in place.”
“Yes, Your Honor,” he responded.
According to a statement from Binance, they admit to making “misguided decisions” as they rapidly rose to become the largest cryptocurrency exchange in the world. They also acknowledge their “responsibility for past violations related to criminal compliance” in the settlement.
Janet Yellen, the Secretary of the Treasury in the United States, stated that Binance facilitated transactions for illegal individuals, enabling various illegal activities such as child sexual abuse, drug trafficking, and terrorism through over 100,000 transactions.
According to Yellen, Binance did not report any potentially suspicious activity related to these transactions. The company also facilitated more than 1.5 million trades involving virtual currency that violated U.S. sanctions, including those with Hamas’ al-Qassam Brigades, al-Qaeda, and other criminal entities.
The judge scheduled Zhao’s sentencing for February 23rd, but it may be postponed. He could potentially receive a sentence of up to 18 months according to the guidelines.
Mark Bartlett, an attorney representing Zhao, stated that Zhao was informed of the investigation in December 2020 and voluntarily surrendered despite the fact that the United Arab Emirates, where he resides, does not have an extradition agreement with the United States.
“He made the choice to be present and accept the repercussions,” Bartlett stated. “He is currently present and has pleaded guilty.”
Zhao, who is married and has young children in the United Arab Emirates, gave his word that he would come back to the United States for his sentencing if he is permitted to remain there in the meantime.
“I am ready to take ownership and move on from this phase in my life,” stated Zhao. “I am eager to return. Otherwise, I would not be present here today.”
Zhao previously faced allegations of diverting customer funds, concealing the fact that the company was commingling billions of dollars in investor assets and sending them to a third party that Zhao also owned.
During the summer, Binance faced allegations of functioning as an unregistered securities exchange and breaking various U.S. securities regulations in a legal suit brought by regulators. The lawsuit resembled actions that were discovered following the downfall of FTX.
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.
During the trial and in subsequent public remarks, Bankman-Fried attempted to place responsibility on Binance and Zhao for supposedly orchestrating a bank run at FTX.
Bankman-Fried was convicted of wire fraud and multiple other offenses by a jury. He is set to receive his sentence in March, which could result in many years of imprisonment.
Johnson was a contributor from Seattle, while Associated Press writer Ken Sweet contributed to this story from New York.