In a historic move, Binance Holdings Limited, the operator of the world’s largest cryptocurrency exchange, Binance.com, has admitted guilt in a plea deal with the U.S. Department of Justice. The guilty plea encompasses a range of serious charges, including Anti-Money Laundering (AML) violations, failure to register as a money transmitting business, and breaches of the International Emergency Economic Powers Act (IEEPA).
The company has agreed to pay a staggering $4 billion to settle the charges. Notably, Binance’s founder and CEO, Changpeng Zhao, a prominent figure in the cryptocurrency space, has also pleaded guilty and resigned from his position.
Coordinated Resolutions with Regulatory Bodies
Binance’s guilty plea is part of a coordinated effort with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the U.S. Commodity Futures Trading Commission (CFTC). This marks one of the largest corporate resolutions in U.S. history, highlighting the severity of the violations. Attorney General Merrick B. Garland emphasized that the success in prosecuting the CEOs of major cryptocurrency exchanges sends a clear message that illegal activities, even in the realm of new technology, will result in criminal consequences.
Binance’s Blind Eye to Legal Obligations & CEO Changpeng Zhao’s Role in Violations
According to court documents, Binance admitted to prioritizing growth and profits over compliance with U.S. law. Despite launching in 2017 and becoming the world’s largest cryptocurrency exchange by attracting high-volume customers, particularly from the U.S., Binance failed to register with FinCEN as a money services business. The company chose not to implement an effective AML program, allowing money to flow to terrorists, cybercriminals, and child abusers through its platform. Secretary of the Treasury Janet L. Yellen stated that today’s penalties and monitorship set a milestone for the virtual currency industry, emphasizing that any institution wanting to benefit from the U.S. financial system must adhere to regulations.
Changpeng Zhao, commonly known as CZ, played a pivotal role in the violations, admitting to failing to maintain an effective AML program. Documents reveal that Binance targeted U.S. customers but refused to comply with U.S. law. The company’s deliberate violations of anti-money laundering and sanctions laws posed threats to the U.S. financial system and national security. Acting Assistant Attorney General Nicole M. Argentieri stressed that when profits take precedence over compliance, companies and their executives will face legal consequences.
Sanctions Violations and Impact on Financial Markets
Binance‘s activities extended to undermining the foundation of safe and sound financial markets by intentionally avoiding basic obligations that apply to exchanges. Despite knowing the legal requirements, Binance did not implement controls to prevent U.S. users from trading with customers in sanctioned jurisdictions. This intentional failure resulted in over $898 million in trades between U.S. users and individuals in Iran alone. Chairman Rostin Behnam of the CFTC emphasized the need for full regulatory oversight to protect American investors participating in digital asset products.
Lack of AML Protocols and Monitoring Lead to Record-Breaking Financial Penalty
Binance‘s failure to implement core components of an effective AML program is a critical aspect of the plea agreement. The company did not adopt comprehensive know-your-customer (KYC) protocols or systematically monitor transactions, leading to illicit actors exploiting the exchange. Illicit proceeds from ransomware, darknet transactions, and various scams flowed through Binance due to its lack of safeguards. The guilty plea sheds light on the significant shortcomings in Binance‘s approach to AML compliance.
As part of the plea agreement, Binance has agreed to forfeit $2.51 billion and pay a criminal fine of $1.81 billion, totaling over $4.31 billion in financial penalties. The company will also undergo three years of monitoring to ensure compliance with anti-money laundering and sanctions regulations. Binance separately reached agreements with the CFTC, FinCEN, and OFAC, with approximately $1.8 billion credited towards those resolutions. The penalties reflect the nature, seriousness, and pervasiveness of the offenses committed by Binance.
Zhao’s Admission of Prioritizing Growth Over Compliance
Changpeng Zhao’s admission that he understood Binance served U.S. users and knowingly prioritized growth over compliance is a critical aspect of the case. Zhao’s directive to employees – “better to ask for forgiveness than permission” – reflects a mindset that contributed to illegal transactions between U.S. users and those in jurisdictions subject to U.S. sanctions. The guilty plea underscores the consequences of prioritizing profit and growth over adherence to legal requirements, particularly in the rapidly evolving landscape of cryptocurrency.
Binance‘s admission of guilt and the resulting penalties represent a landmark moment in the regulation of cryptocurrency exchanges. The coordinated efforts of various regulatory bodies underscore the commitment to enforcing compliance in the rapidly expanding cryptocurrency industry. The case serves as a warning to other crypto and decentralized finance (DeFi) companies that prioritizing growth at the expense of legal obligations will lead to severe consequences.
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