BINANCE chief executive Zhao Changpeng pleaded guilty on Tuesday (Nov 21) to US money-laundering charges, in a deal that will see the cryptocurrency exchange he founded pay over US$4 billion in penalties.

“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed – now it is paying one of the largest corporate penalties in US history,” Attorney General Merrick Garland said in a statement.

Binance’s former chief compliance officer Samuel Lim, a Singaporean, was charged by the Commodity Futures Trading Commission (CFTC) with violating the Commodity Exchange Act and wilfully aiding and abetting Binance’s numerous violations of the Act.

The CFTC on its website said Lim has agreed to pay US$1.5 million to settle the charges. The proposed settlement is subject to court approval.

The CFTC in March filed civil charges against Binance, alleging it failed to implement an effective anti-money laundering programme 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, Lim received information on transactions by the Palestinian militant group Hamas on Binance, the CFTC wrote.

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“(Lim) explained to a colleague that terrorists usually send ‘small sums’ as ‘large sums constitute money laundering’,” the CFTC said in its March lawsuit.

Binance’s guilty plea is part of coordinated action including with the Treasury Department’s Financial Crimes Enforcement Network and Office of Foreign Assets Control (OFAC), the Department of Justice said.

Zhao pleaded guilty to failing to maintain an effective anti-money laundering programme, the Department of Justice said, and he has resigned from his position of CEO.

Zhao, who lives abroad, entered his plea in person in the United States, added Garland.

Binance’s agreements with the Treasury Department’s agencies include a civil money penalty of US$3.4 billion and a US$968 million penalty involving OFAC. These mark the agencies’ largest settlements in history.

“Binance turned a blind eye to its legal obligations in the pursuit of profit,” Treasury Secretary Janet Yellen said in a statement.

“Its wilful failures allowed money to flow to terrorists, cybercriminals and child abusers through its platform.”

She noted Binance “deliberately undermined its own sanctions monitoring controls,” allowing over 1.5 million virtual currency trades violating US sanctions, and failed to report suspicious transactions.

Yellen said the penalties, and a five-year monitorship imposed on Binance, mark a “milestone for the virtual currency industry”.

Unprecedented

The monitorship is unprecedented in the virtual currency space, a US Treasury official told journalists, speaking on condition of anonymity, comparing it to the oversight structure imposed on banks over a decade ago.

Moving forward, Binance must file suspicious activity reports required by law, on top of reviewing past transactions to report such activity to authorities, Garland said.

“This will advance our criminal investigations into malicious cyber activity and terrorism fundraising, including the use of cryptocurrency exchanges to support groups such as Hamas,” he added.

Binance was created in 2017 and cornered much of the crypto-trading market, turning Zhao into a billionaire.

Binance runs crypto exchanges and provides other services across the world, but it has taken a severe hit since crypto markets collapsed and regulators began probing the legality of its business.

Zhao – often seen as the arch-rival of disgraced FTX founder Sam Bankman-Fried – is expected to face sentencing at a later time.

With the deal, Zhao is barred from future involvement operating Binance’s business.

“Misguided decisions”

In a statement, Binance conceded that it “made misguided decisions along the way” as it grew rapidly in an industry that was in the “early stages of regulation”.

“Today, Binance takes responsibility for this past chapter,” it said.

The company added that it did not initially have adequate compliance controls, saying that it has been working to restructure. Its former global head of regional markets, Richard Teng, will succeed Zhao as CEO.

Teng said in a statement that his focus will be on “reassuring users that they can remain confident in the financial strength, security and safety of the company” as well as collaborating with regulators and working with partners to drive growth.

In a separate social media announcement, Zhao said: “I made mistakes, and I must take responsibility.”

The latest deal does not include the company’s entanglements with the Securities and Exchange Commission, another regulator, which pressed a raft of charges against Binance in June, saying it allowed US residents to trade even when it was not registered in the country as a securities exchange.

The SEC also alleges the firm misused customer funds.

While Binance was founded in China, Zhao moved its operations to other locations internationally after a crackdown on the crypto sector by Beijing.

The volatile industry surged in 2021 with a range of complex products and celebrity endorsements propelling it to a valuation in excess of US$3 trillion last year.

But a series of scandals, including the collapse of the FTX exchange and criminal charges for its executives, saw public confidence evaporate and investors pull their money out. REUTERS, AFP