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Binance founder guilty of felony for not stopping money laundering

Authorities charged Binance founder Changpeng Zhao with not doing enough to prevent money laundering on the cryptocurrency exchange.
Binance founder guilty of felony for not stopping money laundering
Posted at 3:01 PM, Nov 21, 2023
and last updated 2023-11-21 17:01:41-05

The U.S. government dealt a massive blow to the world’s largest cryptocurrency exchange Binance as its founder, Changpeng Zhao, pleaded guilty to a felony charge Tuesday related to his failure to prevent money laundering on his platform.

Binance also agreed to a roughly $4 billion settlement with the U.S. over violations of the Bank Secrecy Act and apparent violations of sanctions programs, including failure to put into place a suspicious transaction reporting program. Zhao announced that he stepped down as the company's chief executive.

Over the summer, the company was accused of operating as an unregistered securities exchange and violating a slew of U.S. securities laws in a lawsuit from regulators. That case was similar to practices uncovered after the collapse of FTX, the second largest cryptocurrency exchange, last year.

“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now it is paying one of the largest corporate penalties in U.S. history,” said Attorney General Merrick B. Garland. “The message here should be clear: Using new technology to break the law does not make you a disruptor, it makes you a criminal.”

Zhao pleaded guilty to one count of failure to maintain an effective anti-money-laundering program in federal court in Seattle. Binance is a Cayman Islands limited liability company.

Binance said in a statement that it made “misguided decisions” as it quickly grew to become the world’s largest crypto exchange and that the settlement acknowledges its “responsibility for historical, criminal compliance violations."

“Ever since Binance launched its convertible virtual currency platform, it has knowingly evaded the U.S. laws designed to protect these systems,” Treasury Secretary Janet Yellen said. “Binance was allowing illicit actors to transact freely, supporting activities from child sexual abuse, to illegal narcotics, to terrorism, across more than 100,000 transactions.”

The U.S. Treasury said Binance allowed Hamas’ military wing al-Qassam Brigades, Palestinian Islamic Jihad, al-Qaida and other criminals to conduct transactions.

“Binance processed these transactions, but it never filed a single suspicious activity report,” Yellen said. “And it also allowed over 1.5 million virtual currency trades that violated U.S. sanctions.”

As part of a settlement agreement, Binance will be subject to five years of monitoring and “significant compliance undertakings, including to ensure Binance’s complete exit from the United States,” according to the U.S. Treasury.

Magistrate Judge Brian A. Tsuchida set Zhao’s sentencing for Feb. 23; however, that's likely to be delayed. He faces a possible guideline sentence range of up to 18 months.

The judge questioned Zhao to make sure he understood the plea agreement, saying at one point: “You knew you didn’t have controls in place.”

“Yes, your honor,” he replied.

One of his attorneys, Mark Bartlett, noted that Zhao had been aware of the investigation since December 2020, and surrendered willingly even though the United Arab Emirates — where Zhao lives — has no extradition treaty with the U.S.

“He decided to come here and face the consequences,” Bartlett said. “He’s sitting here. He pled guilty.”

SEE MORE: Regulators sue crypto company Binance over mishandled funds

Zhao, who is married and has young children in the UAE, promised that he would return to the U.S. for sentencing if allowed to stay there in the meantime.

“I want to take responsibility and close this chapter in my life,” Zhao said. “I want to come back. Otherwise I wouldn’t be here today.”

Zhao had 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.

The cryptocurrency industry has been marred by scandals and market meltdowns. Sam Bankman-Fried, the 31-year-old founder of FTX, was convicted earlier this month of fraud for stealing at least $10 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.

A jury found Bankman-Fried guilty of wire fraud and several other charges in October. He is expected to be sentenced in March, when he could face decades in prison.

SEE MORE: Jury convicts FTX founder Sam Bankman-Fried of fraud charges


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