The agreement, characterized by prosecutors as one of the most substantial corporate penalties in U.S. history, involves Zhao personally paying $50 million.
Binance CEO Changpeng Zhao has resigned and admitted guilt for violating U.S. anti-money laundering laws as part of a $4.3 billion settlement, concluding a lengthy investigation into the world's largest cryptocurrency exchange, as announced by prosecutors on Tuesday.
In this agreement, Zhao will personally pay $50 million, making it one of the most significant corporate penalties in U.S. history, according to prosecutors. This development adds to the challenges faced by the cryptocurrency industry, which has been under scrutiny from various investigations, including the recent fraud conviction of FTX founder Sam Bankman-Fried.
Despite the setbacks, legal experts note that the outcome is favorable for Zhao. The settlement allows him to preserve his substantial wealth and retain his ownership stake in Binance, the exchange he founded in 2017.
Binance violated U.S. anti-money laundering and sanctions laws, neglecting to report over 100,000 suspicious transactions involving organizations identified by the U.S. as terrorist groups, including Hamas, al Qaeda, and the Islamic State of Iraq and Syria, according to authorities.
Additionally, the exchange failed to report transactions linked to websites dedicated to the sale of child sexual abuse materials and emerged as one of the primary recipients of ransomware proceeds, officials stated.
U.S. Attorney General Merrick Garland commented on Tuesday, stating, "Binance made it easy for criminals to move their stolen funds and illicit proceeds on its exchanges. Binance also did more than just fail to comply with federal law. It pretended to comply."
Certain charges, encompassing both criminal and civil aspects, are connected to practices initially revealed in a series of articles by Reuters in 2022.
The Justice Department, in collaboration with the Commodity Futures Trading Commission (CFTC) and the Treasury Department, has reached a settlement. As reported by the New York Times, the department is pursuing an 18-month prison sentence for Zhao, the maximum suggested under federal guidelines.
Samuel Lim, Binance's former chief compliance officer, has been charged by the CFTC. The agency noted that neither Lim nor his legal representatives have responded to requests for comment.
Binance is set to pay $1.81 billion within 15 months and an additional $2.51 billion in forfeiture as part of the agreement, as confirmed by prosecutors.
Changpeng Zhao, the billionaire founder born in China who moved to Canada at the age of 12, entered a guilty plea in a Seattle court on Tuesday. Following the announcement of the settlement, Zhao took to social media, stating, "Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself."
While investigations into Zhao and Binance have been ongoing for years, Zhao's departure marks a significant turn of events for one of the most influential figures in the crypto industry and for Binance itself. The settlement raises uncertainties about the future of the cryptocurrency exchange, which Zhao has closely overseen.
Richard Teng, a longstanding Binance executive, is set to assume the role at Binance, as mentioned in Zhao's post.
"These resolutions acknowledge our company's responsibility for historical, criminal compliance violations, and allow our company to turn the page," Binance stated in response to the settlement. In a separate statement, Teng emphasized his focus on "reassuring users that they can remain confident in the financial strength, security, and safety of the company."
Zhao retains Binance stake
Vanderbilt University law professor Yesha Yadav remarked that while the fine imposed on Binance is exceptionally large, it seems manageable for the company. She suggested that the deal appears crafted to give Binance an opportunity to continue its operations while distancing itself from Changpeng Zhao (CZ), a prominent figurehead linked closely to the growth of the business model. Even though Zhao retains his stake in Binance, Yadav pointed out that he may still exert influence on the company. Zhao's net worth, according to Forbes, is $10.2 billion. Robert Frenchman of Mukasey Frenchman LLP noted that, considering the gravity of the violations and the involved parties, Zhao emerges from this situation appearing favorable. Frenchman highlighted Zhao's substantial wealth and the likelihood of spending minimal time in a U.S. jail. Zhao retains his ownership stake in Binance, which has now resolved significant legal issues. Prosecutors likely weighed these factors against the possibility that Zhao might not have otherwise surrendered and aimed to persuade Binance to agree to a substantial financial settlement, according to Jeffrey Cohen, an assistant professor at Boston College Law School and former federal prosecutor.
'Potentially illegal'
Binance has been under the scrutiny of the Justice Department since at least 2018, according to a report by Reuters last year. This is part of a series of legal challenges the company is facing in the United States. In December 2020, federal prosecutors requested internal records from Binance regarding its anti-money laundering efforts, along with communications involving Changpeng Zhao (CZ), the CEO. The Commodity Futures Trading Commission (CFTC) filed civil charges against Binance in March, alleging a failure to implement an effective anti-money laundering program to detect and prevent terrorist financing. The CFTC also claimed that internally, Binance officers and employees acknowledged that the platform facilitated "potentially illegal activities." In February 2019, according to the CFTC, Binance's former chief compliance officer, Samuel Lim, received information about transactions by the militant Palestinian group Hamas on the platform. Lim allegedly explained that terrorists typically send "small sums" as "large sums constitute money laundering." Daniel Silva, a partner at law firm Buchalter and former federal prosecutor, stated that the allegations could have supported more serious charges against Zhao, such as fraud or money laundering. The resolution reached is considered favorable for Zhao in avoiding more severe charges. A guilty plea involving the CEO of a company is rare and highlights the Justice Department's emphasis on individual accountability under Democratic leadership. The substantial fines indicate the U.S. government's intention to regulate the cryptocurrency sector, with the financial size of the deal described as "staggering" by legal experts.
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