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Binance and CEO ‘CZ’ plead guilty to federal charges, agreed to pay $4.3B in fines

Image Credits: Piaras Ó Mídheach/Sportsfile for Web Summit via Getty Images
Image Credits: Piaras Ó Mídheach/Sportsfile for Web Summit via Getty Images

This week has been hectic for cryptocurrency exchanges and the US government. The founder and CEO of Binance, Changpeng Zhao, also called “CZ,” has announced his resignation and pleaded guilty to many charges brought by the Department of Justice and other American authorities. He is scheduled to enter a plea in a federal court in Seattle on Tuesday afternoon.

The biggest cryptocurrency exchange in the world, Binance, has also consented to pay the DOJ roughly $4.3 billion to end its investigations, the department announced in a news release on Tuesday.

Binance has also reached agreements with the Financial Crimes Enforcement Network (FinCEN) of the Department of Treasury, the Office of Foreign Assets Control (OFAC), and the Commodity Futures Trading Commission (CFTC) as part of its guilty plea. The company will credit approximately $1.8 billion toward those resolutions.

According to the DOJ announcement, the cryptocurrency exchange “admits it engaged in anti-money laundering, unlicensed money transmitting, and sanctions violations,” referring to it as the “largest corporate resolution” that includes an executive facing criminal charges. Zhao pleaded guilty to neglecting to keep up an anti-money laundering initiative.

U.S. Attorney General Merrick Garland stated, “The message here should be clear: using new technology to break the law does not make you a disruptor; it makes you a criminal.”

According to a filing on the accusations, Binance, Zhao, and other connected parties “knowingly failed to register as a money services business” and broke the Bank Secrecy Act by neglecting to implement an anti-money laundering program. It said the respective parties disregarded American laws and broke U.S. economic sanctions “in a deliberate and calculated effort to profit from the U.S. market.”

According to CFTC Chairman Rostin Behnam, the cryptocurrency exchange received trading fees from US consumers totaling around $1.35 billion. Zhao stressed the exchange’s expansion there over adhering to US law, telling Binance staff that it was “better to ask for forgiveness than permission,” according to court filings.

Secretary of Treasury Janet Yellen stated, “Any institution, wherever located, that wants to reap the benefits of the U.S. financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime or face the consequences.”

According to a separate filing dated Monday, Zhao’s plea deal states that he won’t make any statements “contradicting his acceptance of responsibility” and will abide by the court’s request that the CFTC be fined $50 million.

Regarding Binance’s plea deal, the company said in its Monday filing that it would accept Zhao’s resignation and forbid him “from any present or future involvement in operating” the company, starting from the moment the plea deal is accepted and ending three years after the day a monitor is appointed. During those three years, the business will also “maintain and enhance” its compliance procedures and choose an impartial compliance monitor.

Despite TechCrunch’s repeated attempts to comment on the claims, the cryptocurrency exchange did not reply.

After debuting in June 2017, Binance became the biggest cryptocurrency exchange globally in 180 days. According to CoinMarketCap data, its trading volume over the last 24 hours was over $12.65 billion, 532% more than the $2 billion traded on Coinbase, the second-largest cryptocurrency exchange.

This occurred less than a day after Kraken, the cryptocurrency exchange that ranks third in trading volume was accused by the SEC of acting as an “unregistered securities exchange, broker, dealer, and clearing agency.”

In a separate development, Kraken settled a previous lawsuit with the SEC in February by consenting to pay $30 million in costs for “disgorgement, prejudgment interest, and civil penalties” and ending its crypto staking services for customers in the United States.

The U.S. Securities and Exchange Commission accused Zhao and the exchange of lying to regulators about their operations, and the agency filed 13 counts against the defendants in the federal case. More than five months have passed since the DOJ brought allegations against Binance. According to the SEC filing, Binance and Zhao were “intimately involved” in overseeing the trading entity’s business operations and offering cryptocurrency-related services to the Binance.US platform, which asserts its independence as an exchange.

Due to suspected violations of trading and derivatives regulations, the U.S. CFTC also filed a lawsuit against Binance, Zhao, and Chief Compliance Officer Samuel Lim in late March.

This past year, Binance has garnered media attention for various reasons, including Zhao’s remarks that aided in the demise of FTX, one of its main rivals. Due to a “hostile and uncertain regulatory climate,” its American sibling business Binance.US canceled its $1.3 billion agreement to purchase the assets of cryptocurrency broker Voyager Digital in April.

Checkout.com severed its relationship with Binance in August because of worries about the cryptocurrency company’s purported problems with sanctions, compliance controls, and anti-money laundering. When the announcement was made, a representative for Binance stated that the company disagreed with “Checkout’s purported basis for termination and is considering our options for legal action.”

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