January 11, 2024
The U.S. Attorney’s Office for the Western District of Washington announced that Binance Holdings Ltd. (Binance) and its principal, Changpeng Zhao (Zhao), pleaded guilty to multiple charges including operating an unlicensed money service business, failing to maintain an effective anti-money laundering program, and violating the International Emergency Economic Powers Act (IEEPA). The guilty pleas follow an extensive investigation by the Department of Justice (DOJ), 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). As part of the coordinated resolution, Binance has agreed to pay over $4 billion to settle the charges. Zhao will resign from his role as CEO.
Cryptocurrency exchanges are online platforms hosted by companies that make it more convenient for users to purchase and sell cryptocurrency such as Bitcoin, Ethereum, and Tether. Cryptocurrency exchanges work similarly to a securities brokerage firm, giving you the tools to buy, sell or trade cryptocurrencies easily. They also offer security features and storage options for digital assets that may be superior to maintaining wallet software on your own. Since its introduction in 2017, Binance has become the world’s largest cryptocurrency exchange.
Because it serves U.S. customers, Binance was required to register with FinCEN as a money services business. In addition, it was required to implement an effective AML program that was reasonably designed to prevent Binance from being used to facilitate money laundering. Instead, Binance chose not to comply with U.S. law.
The government claimed its financial platform was without even basic AML safeguards. This allowed illicit actors to exploit the platform for money laundering, terrorist financing, and other criminal activities. The company also failed to implement comprehensive know-your-customer (KYC) protocols. This, combined with its lack of transaction monitoring mechanisms, facilitated trillions of dollars in transactions, generating substantial profits. In fact, Binance never filed a single suspicious activity report (SAR) according to FinCEN. Additionally, Binance permitted users to open accounts and trade without submitting any identifying information beyond an email address.
As Binance’s internal communications showed, its own compliance employees knew that it did not have protocols to flag or report suspicious transactions for money laundering risks. According to the press release, one Binance compliance employee even wrote, “we need a banner ‘is washing drug money too hard these days – come to binance we got cake for you.’”
A corporate strategy that puts profits over compliance isn’t a path to riches; it’s a path to federal prosecution. Today’s charges and guilty pleas – combined with a more than $4 billion financial penalty – sends an unmistakable message to crypto and defi companies: if you serve U.S. customers, you must obey U.S. law.
– Deputy Attorney General Lisa O. Monaco
Despite announcing in 2019 that it would block U.S. customers and launch a separate U.S. exchange, Binance took deliberate steps to retain valuable U.S.-based VIP customers. The guilty plea acknowledges that Binance intentionally avoided implementing meaningful access controls and concealed the presence of U.S. customers on its platforms. As a result, the company caused illegal transactions between U.S. users and users in sanctioned jurisdictions such as Iran, Cuba, Syria, and Russian-occupied regions of Ukraine. These transactions were in violation of IEEPA.
The plea agreement requires Binance to forfeit $2.5 billion and pay a criminal fine of $1.8 billion, totaling over $4.3 billion. Additionally, Binance will undergo a three-year independent compliance monitoring period and enhance its anti-money laundering and sanctions compliance programs.
Whistleblower Law Collaborative LLC, based in Boston, devotes its practice entirely to representing clients nationwide in bringing actions under the federal and state whistleblower laws and programs, including the AML and CFTC whistleblower programs. If you are aware of AML violations or other types of fraud, contact us for a free, confidential consultation.