NEW YORK, Nov 21 (Portal) – Binance Chief Executive Changpeng Zhao resigned and pleaded guilty to violating U.S. anti-money laundering laws as part of a $4.3 billion settlement to a to settle a year-long investigation into the world’s largest crypto exchange, prosecutors said Tuesday.
The deal, which required Zhao to personally pay $50 million, was described by prosecutors as one of the largest corporate penalties in U.S. history. This is another blow to the crypto industry, which has been plagued by investigations, and follows the recent fraud conviction of FTX founder Sam Bankman-Fried.
But several legal experts said it was a good outcome for Zhao as his vast fortune remained intact and he was able to keep his stake in Binance, the exchange he founded in 2017.
Binance violated U.S. anti-money laundering and sanctions laws and failed to report more than 100,000 suspicious transactions with organizations the U.S. designated as terrorist groups, including Hamas, Al-Qaeda and the Islamic State of Iraq and Syria, said the authorities.
The exchange also never reported transactions with websites dedicated to selling child sexual abuse materials and was one of the largest recipients of ransomware proceeds, it said.
“Binance has made it easy for criminals to transfer their stolen funds and illicit proceeds through its exchanges,” U.S. Attorney General Merrick Garland said Tuesday. “Furthermore, Binance has violated more than just federal law. It acted like it was complying.”
Some of the allegations, which are both criminal and civil, relate to practices first reported by Portal in a series of articles in 2022.
The Justice Department, which negotiated the settlement with the Commodity Futures Trading Commission (CFTC) and the Treasury Department, is seeking an 18-month prison sentence for Zhao, the maximum sentence provided under federal guidelines, The New York Times reported.
Binance’s former chief compliance officer Samuel Lim has been charged by the CFTC, the agency said. Neither Lim nor his lawyers responded to requests for comment.
According to prosecutors, Binance will pay $1.81 billion within 15 months and forfeit another $2.51 billion.
Zhao, a billionaire, was born in China and moved to Canada at the age of 12. He pleaded guilty in a Seattle court on Tuesday afternoon.
“Today I resigned as CEO of Binance,” Zhao said on social media after the settlement was announced. “Admittedly, it wasn’t easy to let go emotionally. But I know it’s the right thing to do. I made mistakes and I have to take responsibility. This is what’s best for our community, for Binance and for myself.”
While authorities have investigated Zhao and Binance for years, Zhao’s exit marks a dramatic development for one of the crypto industry’s most powerful figures and for Binance. The deal raises questions about the future of the crypto exchange he tightly controls.
Richard Teng, a long-time Binance executive, will take over Binance, Zhao said in his post.
“These resolutions recognize our company’s responsibility for historic criminal law violations and allow our company to turn the tide,” Binance said in a statement.
In a separate statement, Teng said his focus would be on “assuring users that they can continue to rely on the company’s financial strength, security and protection.”
ZHAO RETAIN BINANCE SHARE
Yesha Yadav, a law professor at Vanderbilt University, said that while the fine was extremely high, it appeared to be manageable for Binance.
[1/2]Zhao Changpeng, founder and CEO of Binance, speaks during an event in Athens, Greece, November 25, 2022. Portal/Costas Baltas/File Photo ACQUIRE LICENSE RIGHTS
“This deal … appears designed to give Binance a chance to live another day while removing CZ, a figurehead so closely tied to the growth of a business model,” she said.
However, since Zhao appears to be retaining his stake in Binance, it is possible that he could still influence the company, Yadav added.
According to Forbes, Zhao is worth $10.2 billion.
Given the severity of the violations and the actors involved, Zhao “appears to have gotten out of it quite well” since the U.S. government likely had to entice him to come to the U.S., said Robert Frenchman of Mukasey Frenchman LLP.
“He still has enormous wealth,” said the Frenchman. “He probably won’t spend too long in a US prison. He retains his stake in Binance, a company that has now resolved some of its biggest legal issues.”
Prosecutors likely weighed these benefits to Zhao against the possibility that he would not have surrendered otherwise and against the desire to persuade Binance to agree to pay a large sum, said Jeffrey Cohen, an assistant professor at Boston College Law School and former federal prosecutor.
“If you can get a good number for a corporate penalty and the price is that the individual defendants get a slightly smaller sentence, then the government makes that calculation,” Cohen said.
“POTENTIALLY ILLEGAL”
As Portal reported last year, Binance has been under Justice Department scrutiny since at least 2018, just one of many legal problems it faces in the United States.
Federal prosecutors asked the company in December 2020 to provide internal records about its anti-money laundering efforts and communications involving Zhao.
The CFTC filed a civil lawsuit against Binance in March, alleging it failed to implement an effective anti-money laundering program to detect and prevent terrorist financing.
Internally, Binance officials and employees admitted that the platform had enabled “potentially illegal activities,” the CFTC claimed.
In February 2019, Lim received information from Binance about transactions by the Palestinian militant group Hamas on Binance, the CFTC wrote.
Lim, a Singaporean, “explained to a colleague that terrorists typically send ‘small sums’ while ‘large sums constitute money laundering,'” the CFTC said in its March complaint.
Daniel Silva, a partner at the Buchalter law firm and a former federal prosecutor, said the allegations likely may have supported charges against Zhao that included harsher penalties such as fraud or money laundering.
“He was facing much more serious charges, so this decision is very positive for him,” Silva said.
Still, a guilty plea against a company’s CEO is rare and underscores the Democratic-led Justice Department’s efforts to bring charges against executives.
“The government is banging the drum on the issue of individual accountability,” said Kit Addleman, a partner at law firm Haynes Boone in Dallas.
She noted that the size of the fines made it clear that the US government wants to rein in the crypto sector and described the financial size of the deal as “astonishing.”
Reporting by Chris Prentice and Jonathan Stempel in New York and David Lawder in Washington; Additional reporting by Tom Wilson and Elizabeth Howcroft in London and Luc Cohen in New York; Editing by Michelle Price, Megan Davies and Lisa Shumaker
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