Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, agreed to plead guilty to money laundering violations, according to court papers made public on Tuesday, a stunning blow to the most powerful and influential figure in the global crypto industry.
Binance itself also agreed to plead guilty and pay $4.3 billion in fines and restitution, according to the documents, filed in federal court in Seattle.
As part of his guilty plea, Mr. Zhao agreed to pay a $50 million fine and will also step down from his role as chief executive of the company. Binance, as part of its plea deal with federal prosecutors, will accept appointment of a monitor, and Mr. Zhao is barred from any involvement in Binance’s business until three years after the monitor is appointed.
The court papers, which are dated Nov. 20, said that criminal charging documents were filed by federal prosecutors against both Binance and Mr. Zhao on Nov. 14. Mr. Zhao’s lawyers could not be reached for comment. A Binance spokesman did not respond to request for comment.
The court documents described a wide-ranging effort by Mr. Zhao and other senior Binance employees to avoid laws, including portions of the Bank Secrecy Act, that require financial institutions and their employees to learn their customers’ true identities, avoid doing business with criminals or people barred by economic sanctions, and to register any U.S.-based businesses with regulators. Customers from Iran, Cuba and Syria — all of which face sanctions — were able to access the Binance platform.
Authorities said that Mr. Zhao knew that Binance’s efforts to stop people from the sanctioned countries doing business on the exchange were inadequate. Federal prosecutors specifically charged Binance with conspiring to run an unlicensed money transmitting business, violating federal bank secrecy laws and violating federal sanctions laws.
In addition to the outlawed foreign transactions, Binance did business with firms based in the United States even though it was not supposed to have any such customers on its Binance.com platform. Instead, a different platform — Binance.US, which Mr. Zhao also owned — was required to handle the business and abide by the country’s anti-money laundering laws. But Mr. Zhao and other Binance employees believed it would be better for the main cryptocurrency exchange to handle big customers, the court filings state.
According to the filings, Mr. Zhao, widely known as C.Z., personally sought to hide Binance’s dealings with large U.S.-based customers — who were referred to as VIPs and handled by a special manager — to “have the U.S. supervision agencies not cause any troubles.”
The filing cited a June 2019 call during which Mr. Zhao advised other Binance employees to talk to U.S.-based VIP customers using methods like phone calls that would leave “no trace” of the interactions.
Binance also offered some important customers a chance to regain access to its main trading platform even after they had been kicked off over concerns that they were engaged in criminal activity, the court papers said. The papers cited a July 2020 incident in which Binance employees identified a particular user as being among the “top contributors to illicit activity,” barred the user from the platform, then discussed giving the user instructions for how to open a new Binance account without revealing any previously identified troublesome connections.
For the relatively young and fast-growing crypto world, Tuesday’s proceedings were a monumental development, given Binance’s global reach and Mr. Zhao’s prominent role as a leader in the industry. At times, Binance has processed two-thirds of all digital currency trades, making it a vital power broker and intermediary in the crypto world.
Mr. Zhao’s guilty plea completed something of a one-two punch by the Justice Department. Earlier this month, the crypto entrepreneur Sam Bankman-Fried was convicted of fraud at a criminal trial arising from the collapse of his FTX crypto exchange.
Since the implosion of FTX a year ago, federal authorities have criminally charged a procession of crypto executives, and the Securities and Exchange Commission has filed lawsuits against some of the largest companies in the industry, including Coinbase, the publicly traded American exchange. On Monday, the S.E.C. sued Kraken, another crypto exchange, accusing it of operating without proper registration and commingling customer deposits with its own corporate assets.
The financial part of the settlement with Binance is approaching the roughly $5 billion that Goldman Sachs paid to authorities in the United States and around the world in 2020 to resolve foreign bribery charges arising from the 1MDB sovereign wealth fund scandal. But the fine is considerably less than the $8.9 billion BNP Paribas paid federal prosecutors in 2014 for violating U.S. sanctions rules.
Before the settlement, regulators had made a series of moves this year to penalize Binance. In March, the Commodity Futures Trading Commission filed a civil suit against the firm and Mr. Zhao, accusing them of violating financial rules designed to protect U.S. investors.
Then in June, the Securities and Exchange Commission charged Binance and Mr. Zhao with mishandling customer funds and lying to regulators. Notably, the S.E.C., which is determined to regulate digital assets like a stock or bond, was not a party to the settlement, according to the documents. The regulator didn’t respond to a request for comment on Tuesday.
The drumbeat of enforcement actions has hurt Binance’s business. After the S.E.C. lawsuit, banks cut off access to Binance.US, forcing the firm to freeze much of its trading activity. A string of top executives departed.
The S.EC. also said that Binance transferred billions of dollars in customer funds to a separate company, Merit Peak Limited, which was controlled by Mr. Zhao.
That accusation echoes the collapse of FTX, once Binance’s largest international rival. This month, Mr. Bankman-Fried was convicted on charges that he misappropriated billions in customer funds, using the money to finance campaign donations and other extravagant spending. When FTX collapsed last year, Mr. Zhao held himself up as the compliant face of the crypto industry, after his tweets helped set off the chain of events that led to the implosion.
In public, Mr. Zhao has often dismissed negative news stories by labeling them as “FUD,” or fear, uncertainty and doubt, the shorthand that the crypto industry has long used to deride skeptics and critics.
He also hired a larger compliance staff, arguing that Binance had learned from its mistakes and matured. In January, a former federal prosecutor, Noah Perlman, was appointed Binance’s new global compliance chief.
Still, cracks have started to show. This year, Binance’s share of the crypto trading market has dipped amid the onslaught from regulators. And in July, several of its top executives, including its chief strategy officer and a high-ranking compliance official, announced they were leaving the company.
Alan Rappeportcontributed reporting.
Source : https://www.nytimes.com/2023/11/21/technology/binance-changpeng-zhao-pleads-guilty.html