Binance and its Founder Plead Guilty to Federal Charges in $4B Resolution.
Binance Admitted that it engaged in Anti-Money Laundering, Unlicensed Money Transmitting, and Sanctions Violations in Largest Corporate Resolution to Include Criminal Charges for an Executive.
The Entity & Crime
Binance Holdings Limited (Binance), the entity that operates the world’s largest cryptocurrency exchange, Binance.com, pleaded guilty and has agreed to pay over $4 billion to resolve the Justice Department’s investigation into violations related to the Bank Secrecy Act (BSA), failure to register as a money transmitting business, and the International Emergency Economic Powers Act (IEEPA).
According to the Attorney General Merrick B. Garland, 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. He said that the message here should be clear: using new technology to break the law does not make you a disruptor, it makes you a criminal.”
Binance’s founder and chief executive officer (CEO), Changpeng Zhao, a Canadian national, also pleaded guilty to failing to maintain an effective anti-money laundering (AML) program, in violation of the BSA and has resigned as CEO of Binance.
Binance launched in 2017 and focused on attracting high-volume customers, including U.S.-based customers. Binance quickly became the largest cryptocurrency exchange in the world, with the greatest share of its customers coming from the United States.
As a result of serving U.S. customers, Binance was required to register with FinCEN as a money services business and to implement an effective AML program that was reasonably designed to prevent Binance from being used to facilitate money laundering.
Instead of complying with U.S. law, in 2019, Binance announced that it would block U.S. customers and launched a separate U.S. exchange, Binance.US. Despite this announcement, Binance took steps to maintain a substantial number of U.S. customers. In particular, Binance focused on retaining valuable “VIP” customers, which were responsible for a large portion of Binance’s trading volume and revenue. These VIP customers were critical to Binance’s business because they helped provide the necessary liquidity to facilitate trades of digital assets.
The Secretary of the Treasury Janet L. Yellen said that Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform.
Binance also did not implement the core components of an effective AML program: Binance did not implement comprehensive know-your-customer (KYC) protocols or systematically monitor transactions, and Binance never filed a suspicious activity report (SAR) with FinCEN. For years, Binance allowed users to open accounts and trade without submitting any identifying information beyond an email address. Binance began requiring all users to provide KYC information in August 2021 but allowed users who had not provided KYC to continue trading on the exchange until May 2022. Between August 2017 and October 2022, U.S. users, including VIPs, conducted trillions of dollars in transactions on the platform, generating over $1.6 billion in profit for Binance.
As Binance’s internal communications showed, Binance’s compliance employees recognized that Binance did not have protocols to flag or report transactions for money laundering risks, which employees recognized would attract criminals to the exchange.
Binance also knew that U.S. sanctions laws prohibited U.S. persons – including its U.S. customers – from trading with its customers subject to U.S. sanctions, including customers in comprehensively sanctioned jurisdictions, such as Iran. Because of this intentional failure, between January 2018 and May 2022, Binance willfully caused over $898 million in trades between U.S. users and users ordinarily resident in Iran.
Changpeng Zhao is the founder and CEO of Binance holdings. In his indictment, Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division said that Zhao made Binance, the company he founded and ran as CEO, into the largest cryptocurrency exchange in the world by targeting U.S. customers, but refused to comply with U.S. law.
Binance’s and Zhao’s willful violations of anti-money laundering and sanctions laws is said to have threatened the U.S. financial system and the national security, and both Binance and Zhao have pleaded guilty. Make no mistake: when you place profits over compliance with the law, you will answer for your crimes in the United States, said Argentieri.
According to court documents, Zhao, admitted that he understood that Binance served U.S. users and was thus required to register with FinCEN and implement an effective AML program. Zhao knew that U.S. users were essential to Binance’s growth and were a significant source of revenue and knew that an effective AML program would include KYC protocols that would mean that some customers would choose not to use Binance.
As part of the plea agreement, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total financial penalty of $4,316,126,163. Binance has also agreed to retain an independent compliance monitor for three years and remediate and enhance their anti-money laundering and sanctions compliance programs. Binance separately has also reached agreements with the CFTC, FinCEN, and OFAC, and the Department will credit approximately $1.8 billion toward those resolutions.
Binance’s guilty plea is part of coordinated resolutions with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) and the U.S. Commodity Futures Trading Commission (CFTC).
The Department reached its resolution with Binance based on a number of factors, including the nature, seriousness, and pervasiveness of the offense, as a result of which Binance processed billions of dollars of cryptocurrency transactions for U.S. persons and caused U.S. customers to engage in transactions in violation of U.S. sanctions. Binance did not make a timely and voluntary disclosure of wrongdoing, but it received partial credit for its cooperation with the Department’s investigation, and it has taken steps to remediate its compliance program. Binance did not receive full credit for its cooperation because it delayed producing relevant evidence, including recorded meetings in which Binance executives discussed U.S. legal requirements. Accordingly, the total criminal penalty reflects a 20% reduction off the bottom of the applicable U.S. sentencing guidelines fine range.