Changpeng Zhao (also known as CZ), the founder and CEO of Binance, pled guilty on Nov. 21 for failing to follow American anti-money-laundering laws.
Binance is a large cryptocurrency exchange. Despite a great decline due to its legal troubles, it still has the largest market share of the cryptocurrency exchange. The company was founded in China, then moved to Japan and then to Malta in order to escape restrictive laws. Binance was banned in the United States in 2019, and responded by launching Binance U.S., a more limited exchange that would adhere to more American laws. Binance was banned from “regulated activity” in the UK in 2021. Zhao currently resides in the UAE. He is from China, but is now a Canadian citizen.
Binance will pay a total fine of $4.3 billion due to charges brought by various federal agencies. Accused by the Commodity Futures Trading Commission (CTFC) of violating the Commodity Exchange Act (CEA) and being an “illegal digital assets derivative exchange,” and also facing charges from the Department of the Treasury’s Financial Crimes Enforcement Network and Office of Foreign Assets Control, Binance will have to pay CTFC $2.85 billion. Zhao himself will also have to pay a fine of about $50 million.
Binance is also being sued by the Securities and Exchange Commission (SEC), who accuses Binance of, among other things, transferring customer money to a separate trading firm owned by Zhao called Sigma Chain. Binance has not pled guilty with regard to these charges.
Binance Chief Compliance Officer Samuel Lim, from Singapore, agreed to pay a $1.5 million fine levied by the CTFC (as well as permanent injunction and equitable relief). In exchange, the CTFC will resolve the charges against him. He would have been charged with violating the CEA and aiding and abetting Binance in their violation of the CEA. The CTFC’s Director of Enforcement warned that “Chief compliance officers should take note of today’s proposed order: If your compliance program is merely ‘for show’ and is intentionally ineffective, the CFTC will hold you accountable for facilitating illegal conduct.”
CTFC Chairman Rostin Behnam accused Binance of “deliberately avoiding to employ meaningful access controls, intentionally avoiding knowing customers’ identities, and actively concealing the presence of U.S. customers on its platforms, there is no question that the CFTC will strike hard and aggressively.” Treasury Secretary Janet Yellen said that Binance “allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” and the Acting Attorney for the Western District of Washington said that Binance’s high degree of privacy allowed Americans to transact with people in “Iran, Cuba, Syria, and Russian-occupied regions of Ukraine.” Binance also apparently encouraged large US customers to refrain from providing information that indicated they were Americans (so that they could trade on Binance’s international exchange).
Senators from both sides of the political aisle wrote letters asking for Binance to be investigated. Binance had tried to provide their customers with a radical amount of privacy. Deputy Attorney General Lisa Monaco said this case is an “unmistakable message to crypto and decentralized finance companies: if you serve U.S. customers, you must obey U.S. law.” Thus, to companies with high ambitions, U.S. law is effectively international law. According to the Assistant Attorney General of the DOJ’s National Security Division, “Binance’s crimes gave sanctioned customers unfettered access to American capital and financial services,” whereas access to American capital and financial services is a key way in which the U.S. government exerts control over other countries.
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