(CTN News) – As part of a $4.3 billion deal with the Department of Justice, Binance head Changpeng Zhao stepped down as CEO and pled guilty to criminal charges on Tuesday, according to court filings. The government’s plea deal ends an investigation that has been ongoing into the biggest bitcoin exchange in the world for several years.
In a Seattle courthouse, Zhao made his plea before Judge Brian Tsuchida. The Justice Department informed the public that Zhao and others were indicted on charges of willfully violating U.S. economic sanctions “in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law” and of failing to establish an effective anti-money-laundering program, both of which constitute violations of the Bank Secrecy Act.
In a Tuesday post on X (previously Twitter), Zhao admitted that he “must take responsibility” for his actions and acknowledged that he had “made mistakes.” He announced that Binance’s new chief executive officer is Richard Teng, who had previously served as the company’s global head of regional markets.
The US Departments of Justice, CFTC, and Treasury worked together to bring charges against Binance and its founder. It was noticeable that the SEC was not there.
More than 1.5 million virtual currency trades breached U.S. sanctions, and the exchange enabled over 100,000 transactions that supported activities including terrorism and illegal narcotics, according to an announcement Tuesday by Treasury Secretary Janet Yellen.
Additionally, it permitted dealings linked to terrorist organizations such the Al-Qassam Brigades of Hamas, the Palestinian Islamic Jihad, al-Qaida, and ISIS. Binance “never filed a single suspicious activity report,” Yellen noted in the press statement.
During a press conference on Tuesday, U.S. Attorney General Merrick Garland described the fine as “one of the largest penalties we have ever obtained.”
“You are not a disruptor if you use new technology to breach the law. Then you’re a criminal, Garland remarked.
“The safety of the American people was prioritized by Binance over its profits,” he said.
The crypto exchange “even developed a process to notify VIP users if they became the subject of a law enforcement inquiry,” as stated in a 92-page consent decree between Binance and the Treasury’s Financial Crimes Enforcement Network, or FinCen.
By the terms of the plea agreement, Zhao personally admitted to breaking the Bank Secrecy Act and conspiring with a financial institution to also break the law. The Department of Justice has also asked the court to punish Zhao $50 million.
A sentencing hearing for Zhao is set for February 23, and he has been freed on a personal recognizance bond of $175 million, with $15 million in cash serving as collateral.
Binance will keep running but with new guidelines. For its operations to remain compliant with anti-money-laundering regulations in the United States, the corporation must keep and improve its compliance program. Appointing an impartial compliance monitor is mandatory for the organization.
On Tuesday, the charges against Binance were revealed in the unsealed case. The exchange was accused of three separate crimes: operating an unauthorized money-transmitting business, breaching the International Emergency Economic Powers Act, and conspiracy.
Binance has settled a $1.8 billion fine and a forfeiture of $2.5 billion with the authorities.
In its brief on Tuesday, the Justice Department stated that Binance “knowingly and willfully” induced the delivery of services to Iran, which is in violation of U.S. sanctions. The news comes after reports surfaced that Binance handled transactions involving billions of dollars from Iran.
Yellen made it clear in a press brief that the Federal Reserve is also communicating with the virtual currency industry on a larger scale, both now and in the future.
The settlement follows FTX founder Sam Bankman-Fried’s November 2nd conviction on multiple felony charges of fraud and conspiracy, which was reached after only three hours of jury deliberation.
The experts told CNBC they had never seen such a swift verdict for a high-profile month-long trial involving nearly 20 witnesses and hundreds of exhibits.
CNBC did not immediately receive a response from Zhao when they contacted out for comment. Binance has chosen not to address multiple comment requests made by CNBC.
In response to legal actions initiated earlier this year by the SEC and the CFTC, the defendant is now facing charges.
Authorities in various jurisdictions have raised concerns about Binance’s strategy of entering certain markets without the necessary authorization, and the company has been accused of participating in illegal dealings like money laundering and securities fraud. As a result, Binance has been subject to intense regulatory scrutiny.
In June, the SEC filed a massive complaint against Binance, claiming the business operated an illicit securities exchange and improperly handled client monies.
Claiming to be an unlicensed securities exchange, broker, and clearing agency, the SEC then sued Coinbase, a competing exchange, similarly.
And on Monday, the SEC filed a lawsuit against Kraken, claiming that the exchange put its customers at danger of losing $33 billion worth of cryptocurrency because it mixed consumer funds with corporate funds.
Similar to the accusations leveled against the now-defunct cryptocurrency exchange FTX, the thirteen complaints levied against Binance by the SEC claimed that the company had mixed customer funds totaling billions of dollars with its own.
According to SEC Chair Gary Gensler, Zhao and Binance businesses engaged in a complex web of dishonesty, conflicts of interest, concealment, and intentional lawlessness.
Binance, founded in 2017 by an entrepreneur of Chinese descent, swiftly rose from relative obscurity to become a dominant player in the cryptocurrency market. Every year, Binance processes billions of dollars in trading volumes, solidifying its position as the largest cryptocurrency exchange in the world.
Despite having a holding company in the Cayman Islands, Binance does not have a global headquarters. Zhao has repeatedly opposed the idea of creating one, stating that he preferred the platform to operate on a “decentralized” model.
Due to a lack of authorization to engage in regulated operations, the Financial Conduct Authority forbade Binance’s U.K. business from functioning in the UK in 2021.
After the regulator found that Binance’s know-your-customer and anti-money-laundering systems did not fulfill its requirements, the cryptocurrency exchange dropped plans to acquire a full U.K. license.
The Commodity Exchange Act, as well as laws “designed to prevent and detect money laundering and terrorism financing,” were cited in the CFTC’s complaint as being violated by Binance, Zhao, and the company’s former chief compliance officer, Samuel Lim. The prosecution also claimed that the exchange was “illegal” and that the compliance program was a “sham.”
A motion to dismiss the CFTC’s claim was submitted in July by Binance and Zhao. In response to what it terms the SEC’s “fishing expedition,” the American exchange branch has filed a protective order, further limiting the SEC’s ability to sue.
The consequences of the agency’s crypto crackdown on numerous tokens and blockchains, beyond just the exchanges, are of special worry to the crypto sector. The SEC accuses Binance and Coinbase of failing to register certain tokens as securities. These tokens include sol from Solana, ada from Cardano, and matic from Polygon.