- CZ resigns as Binance CEO, pleads guilty to failing to maintain an effective anti-money laundering program.
- Binance agrees to pay over US$4 billion (AU$6 billion) in penalties and disgorgements.
- Binance required to appoint an independent compliance monitor to oversee operations.
- Crypto community hopeful this marks an end to the chaos of the past few years.
The US Department of Justice (DOJ) led investigation into Binance and its CEO Chengpeng ‘CZ’ Zhao has reached a resolution with Zhao agreeing to step down as CEO and to plead guilty to one felony charge of failing to maintain an effective anti-money laundering program, in breach of the Bank Secrecy Act (BSA).
In addition to the criminal charge against Zhao, Binance has agreed to pay over US$4 billion (AU$6 billion) to resolve the investigation into the exchange’s violations of the BSA, its failure to register as a money transmitting business and its breaches of the International Emergency Economic Powers Act (IEEPA).
According to the DOJ, this is the largest corporate resolution in US history to include criminal charges against an executive.
Regulators Savage Binance and Zhao
Speaking about the resolution, officials from numerous agencies attacked Binance and Zhao for their conduct and flagrant disregard for US law. Attorney General Merrick Garland said Binance “pretended to comply” with anti-money laundering laws, all the while providing paths allowing users with known ties to illicit funds to access their services.
Garland went on to issue a warning to the wider crypto industry:
In just the past month, the Justice Department has successfully prosecuted the CEOs of two of the world’s largest cryptocurrency exchanges in two separate criminal cases. The message here should be clear: using new technology to break the law does not make you a disruptor, it makes you a criminal.
Merrick Garland, US Attorney GeneralTreasury Secretary, Janet Yellen, was equally scathing, saying
Binance turned a blind eye to its legal obligations in the pursuit of profit. Its wilful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform.
Janet Yellen, U.S. Treasury SecretaryYellen also announced that Binance had agreed to pay over US$3.4 billion (AU$5.19 billion) in penalties to the Financial Crimes Enforcement Network and approximately US$1 billion (AU$1.5 billion) to the Treasury’s Office of Foreign Assets Control.
Commodity Futures Trading Commission (CFTC) Chair, Rostin Behnam, announced Binance would be required to pay US$2.3 billion (AU$3.5 billion) in civil penalties and disgorgements, while Zhao would have to pay US$150 million (AU$228 million) and former compliance officer Samuel Lin US$1.5 million (AU$2.29 million).
Behnam added that Binance’s activities,
undermined the foundation of safe and sound financial markets by intentionally avoiding basic, fundamental obligations that apply to exchanges, all the while collecting approximately $1.35 billion in trading fees from U.S. customers.
Rostin Behnam, CFTC ChairResolution Includes Onerous Terms in Addition To Payments, Charges
In addition to the payments and criminal charges, the plea agreement will also require the exchange to appoint an independent compliance monitor for a period of three years.
According to former SEC Section Chief John Reed Stark, the appointment of a compliance monitor essentially means the DOJ will have full access to all customer data, which may further discourage people from using the exchange—assuming the litany of illegal conduct wasn’t already enough to put them off.
I am wondering whether any person will want to do business with Binance when the U.S. Department of Justice and the Financial Crimes Enforcement Network of the U.S. Treasury Department may have unfettered access, 24-7, 365 days a year, to Binance customer information. That sort of exposure seems anathema to the crypto ethos of libertarian financial transactions.
John Reed Stark, Former SEC Section ChiefWisely, given what we saw from Sam Bankman-Fried in the FTX case, the DOJ also included a clause in the plea agreement forbidding Binance from making any public statements which contradict its acceptance of responsibility in this case.
CZ Responds, Announces New CEO
Zhao posted his response on X, saying he had made mistakes and must now take responsibility for his actions, claiming it’s what is best for Binance, “our community” and himself personally.
He also took the opportunity to announce his successor, Richard Teng, Binance’s former Head of Regional Markets. Zhao ended his statement by highlighting that the resolutions Binance agreed to do not allege any misappropriation of user funds or any market manipulation.
Australian anti-money laundering expert Luke Raven said in a LinkedIn post that CZ’s departure was 100% necessary as culture stems from the top, and also applauded the ban on him making contradictory public statements.
The restraints against CZ disavowing responsibility is fabulous – no tweeting “4” or claiming it’s “FUD”. Just a criminal who has to accept his fate. Good riddance.
Luke Raven, Australian AML/compliance expertCryptoverse Response Mostly Optimistic
Since the collapse of FTX, there has been a sense in the crypto community that centralised exchanges need to be cleaned up if the industry is to continue to grow and move further into the mainstream. The resolution of the investigation into Binance is generally being seen as a further step towards legitimacy and further adoption.
While the crypto market is down in the immediate aftermath of this news, the resolution of the long investigation into Binance is being viewed hopefully, potentially drawing a line under the chaos of the past few years in crypto.
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