Historic sanction against Binance and its CEO, Changpeng Zhao, for systematically violating U.S. money laundering laws
On Tuesday, November 21, 2024, Changpeng Zhao, CEO and founder of Binance, appeared before the federal court in Seattle (Washington) to plead guilty to repeatedly violating laws against money laundering and terrorist financing.
In this regard, Changpeng Zhao has reached a understanding with the Treasury Against Financial Crimes (FinCEN) in which it recognizes the facts and agrees to pay a fine of 4.368 million dollars among other sanctions. With this agreement, Binance compensates for violations of the Bank Secrecy Act (BSA) and alleged violations of multiple sanctions programs.
Once Changpeng Zhao has admitted guilt, the judge has provisionally set February 23, 2024 as the date for publishing the sentence.
Criminal act
Binance is currently the world's largest centralized exchange (CEX) and is responsible for around 60% of all global cryptocurrency trades and exchanges. It has been accused of not complying with its obligations related to the prevention of money laundering and terrorist financing. In this regard, Binance did not intervene or inform the appropriate agencies of suspicious transactions linked to terrorist groups such as the Al-Qassam Brigades of Hamas, the Palestinian Islamic Jihad (YIP), Al Qaeda and the Islamic State of Iraq and Syria (ISIS). It also allowed ransomware attackers, distributors of child pornography, drug traffickers and other criminals to operate. Nor did it comply with the obligation to prevent transactions between users from the United States and other users residing in sanctioned countries such as Iran, North Korea, Cuba, Syria and the Ukrainian region of Crimea. As an example, it is estimated that it allowed the flow of 900 million dollars only in transactions that violated sanctions against Iran.
Binance currently operates in the United States under a Cayman Islands limited liability company.
According to the Treasury, this breach was repeated and conscious on the part of Binance, prioritizing obtaining customers and increasing its profit with a”flagrant disregard for federal laws”.
Sanctions imposed
By signing the agreement, Binance will face the following sanctions:
- $3.4 billion to be paid by Binance to the Treasury against financial crimes (FinCEN)
- $968 million to be paid by Binance to the Office of Foreign Assets Control (OFAC)
- $50 million to be paid by Changpeng Zhao in his personal capacity as a fine
- Resignation as CEO of Binance and not being able to work for the company for a period of 3 years, being able to maintain shareholder control
- Stop offering services in the US market
- Assignment of an independent supervisor and access by the Treasury to Binance's books, records and systems for a period of 5 years, to ensure compliance with the terms of the agreement
- The possibility of increasing the penalty by 150 million if Binance violates any of these conditions.
This is one of the largest corporate fines in the history of the United States and is the largest sanction in the history of FinCEN and according to the Secretary of the Treasury, Janet Yellen,”Today's historic sanctions and oversight to ensure compliance with U.S. laws and regulations mark a milestone for the cryptocurrency industry”.
This sanction is the largest fine imposed on a money services business, the first resolution of a lawsuit settled with a cryptocurrency platform, and also the first of its kind related to the violation of the US sanctions regime
Other legal proceedings that Binance is currently involved in
In addition to this violation of the regulations applicable to the prevention of money laundering, Binance is currently involved in two additional legal proceedings.
The Futures Market Commission (CFTC) filed a lawsuit, in March 2022, against Binance and Changpeng Zhao accusing both of violating regulations that require that transactions with futures and derivatives on commodities and other assets be carried out through regulated markets.
In June 2023, the Securities and Exchange Commission (SEC) sued Binance and Changpeng Zhao for charging fees for U.S. customer transactions without being duly registered to do so.
Uncertain future for the Binance DEX
Now we have several doubts after the imposition of this historic sanction on Binance by the United States, has Binance complied with European regulations relating to the prevention of money laundering? Will it be the last sanction imposed on you in the United States? Will it be able to financially withstand ceasing to offer services in the US market? How will this affect your liquidity? Will this affect other centralized exchanges operating in the United States? Is this the beginning of the end of centralized exchanges as we know them?