Crypto giant Binance admits to money laundering and agrees to pay $4.3bn

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Changpeng Zhao, founder of Binance, the world’s largest cryptocurrency exchange, agreed to resign from the company and plead guilty to money laundering on Tuesday. As part of a guilty plea, Zhao agreed to pay a $50m fine and would be barred from any involvement in the business. Binance too agreed to plead guilty, accept the appointment of a monitor and pay a criminal fine of nearly $1.81bn as well as a $2.51bn order of forfeiture to settle three criminal charges. The US Justice Department had charged the company with conducting an unlicensed money transmitting business, a conspiracy charge and violating the International Emergency Economic Powers Act. Zhao wrote in a tweet, “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… I can’t see myself being a CEO driving a startup again.” The attorney general Merrick Garland said at a press conference that the total of $4.3bn in fines Binance and Zhao had agreed to pay as part of guilty pleas was one the largest penalties the justice department had ever obtained from a criminal matter. According to Garland, Zhao had “willfully violated federal law that guards against money laundering and terrorist financing”. The Binance chief, he said, had entered a guilty plea in person on Tuesday in Seattle. “From the very beginning, Zhao and other Binance executives had engaged in a deliberate and calculated effort to profit from the US market without implementing the controls that are required by US law,” Garland said. The US attorney general identified millions in transactions from the US to Iranian users, users in Syria and Russian-occupied Ukraine, and terrorist groups including Isis. “Binance willfully enabled hundreds of millions of dollars in transactions between American users and users subject to US sanctions. Its platform accommodated criminals across the world who used Binance to move stolen funds and other criminal proceeds,” he added. Treasury secretary Janet Yellen said US financial regulators had been investigating Binance for more than three years and found that it had engaged in “consistent and egregious violations” of US law that “allowed illicit actors to transact freely” on the platform and “supporting activities from child sexual abuse, to illegal narcotics and terrorism across more than 100,000 transactions”. Yellen said Binance had posed risks “to the US financial system, US citizens and our country’s national security for too long”. And she had a message for the cryptocurrency industry: “Let me be clear, we’re also sending a message to the virtual currency industry more broadly – today and for the future, the virtual currency exchanges and financial technology firms wish to realize the tremendous benefits of being part of the US financial system they must play by the rules. If they do not, the US government will take action.” Richard Teng, Binance’s head of regional markets outside the US, was named CEO of the firm after the justice department remarks concluded. The announcement is another huge blow for the cryptocurrency sector. The settlement with Binance comes less than a month after Sam Bankman-Fried was convicted on seven counts of fraud and conspiracy for his part in the collapse of FTX, a trading platform that had been second only in size to Binance. The FTX founder faces 115 years in prison when he is sentenced next year. Zhao, or CZ, played a significant role in FTX’s collapse. He was given the opportunity to look over FTX’s books shortly before it collapsed. But he declined to step in, and ensured the collapse of the smaller rival when he tweeted that Binance was dumping its position in FTX’s house token, FTT. Zhao and Bankman-Fried, though strikingly opposite in character and appearance, had both promised a rosy future for digital currencies that some predicted could replace sovereign currencies. But financial regulators and prosecutors did not see it that way. When charges against Bankman-Fried were announced in December of last year, the US attorney Damian Williams said the “phenomenal downfall” of the cryptocurrency exchange and the criminal charges that followed were “not a case of mismanagement or poor oversight, but of intentional fraud, plain and simple”. Binance has been under justice department’s scrutiny since at least 2018, just one of a string of legal and regulatory headaches it faces in the US. Federal prosecutors asked the company in December 2020 to provide internal records about its anti-money laundering efforts, along with communications with Zhao. Financial regulator the Commodities Futures Trading Commission (CFTC) filed civil charges against Binance in March, alleging it failed to implement an effective anti-money laundering program to detect and prevent terrorist financing. Internally, Binance officers and employees acknowledged that the platform facilitated “potentially illegal activities”, the CFTC alleged. In February 2019, Binance’s former chief compliance officer Samuel Lim received information on transactions by the militant Palestinian group Hamas on Binance, the CFTC wrote. Zhao, a billionaire who was born in China and moved to Canada at the age of 12, said the CFTC’s “complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged”.

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