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A compliance employee of Binance—the world’s largest cryptocurrency exchange—allegedly wrote: “We need a banner ‘is washing drug money too hard these days—come to Binance we got cake for you.”
According to court documents, Binance launched in 2017, at the heels of the shuttering of Bulgaria-based bitcoin exchange BTC-e. It emerged as the largest digital asset platform in the world replacing BTC-e by prioritizing growth and profits over compliance with US laws by not implementing the core components of an effective anti-money laundering (AML) program with comprehensive know-your-customer (KYC) protocols or systematically monitoring transactions or filing a suspicious activity report (SAR) with FinCEN, a US financial watchdog.
Instead, Binance focused on attracting high-volume US-based customers allowing them to open accounts and trade trillions of dollars in transactions on the platform, without submitting any identifying information beyond an email address. As Attorney General Merrick B. Garland explained:
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed.”
Binance served US customers and was required to register with FinCEN as a money services business and implement an effective AML program to prevent money laundering; prevent US customers from conducting transactions with customers in sanctioned jurisdictions. Acting U.S. Attorney Tessa M. Gorman for the Western District of Washington said:
“From the beginning of its existence, Binance and founder Changpeng Zhao chose growth and personal wealth over following financial regulations aimed at stopping the laundering of criminal cash.”
Binance’s failure to implement an effective AML program, allowed illicit actors to use Binance’s exchange in various ways, including conducting transactions for mixing services that disguised the source and ownership of digital assets; transferring illicit proceeds from ransomware variants; moving proceeds of darknet market transactions, exchange hacks, and various internet-related scams. Binance failed to report over 100,000 suspicious transactions involving terrorist groups including Hamas, ransomware, child sexual exploitation material, and scams. As Secretary of the Treasury Janet L. Yellen noted:
“Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform.”
Binance also did not implement controls that would prevent US users from trading with users in sanctioned countries such as Iran; willfully causing over $898 million in trades between US users and users ordinarily resident in Iran. “Changpeng Zhao knowingly operated a financial platform without basic anti-money laundering safeguards, the company caused illegal transactions between US users and users in sanctioned jurisdictions such as Iran, Cuba, Syria, and Russian-occupied regions of Ukraine—transactions for which Binance profited with significant fees” of over $1.6 Billion. Thereby “giving sanctioned customers unfettered access to American capital and financial services,” explained Assistant Attorney General Matthew G. Olsen of the Justice Department’s National Security Division.
As a result, Binance pleaded guilty and agreed to pay over $4 billion to resolve the Justice Department’s investigation into violations related to the Bank Secrecy Act, failure to register as a money transmitting business, and the International Emergency Economic Powers Act (IEEPA). As part of the plea agreement, Binance has agreed to forfeit $2.5 billion and to pay a criminal fine of $1.8 billion for a total financial penalty of $4.3 Billion, “paying one of the largest corporate penalties in US history,” pointed out Attorney General Merrick B. Garland. Binance separately also reached agreements with the CFTC, FinCEN, and OFAC, and the Department will credit approximately $1.8 billion toward those resolutions. As Deputy Attorney General Lisa O. Monaco added:
“Today’s charges and guilty pleas—combined with a more than $4 billion financial penalty—sends an unmistakable message to crypto and defi companies: if you serve US customers, you must obey US law.”
Binance’s founder and chief executive officer, Changpeng Zhao, a Canadian national, also pleaded guilty to failing to maintain an effective AML program, in violation of the BSA and resigned as CEO of Binance. Zhao was replaced by Richard Teng, a former Abu Dhabi financial services regulator who most recently served as the global head of regional markets at Binance.
Channeling Marie Antionette “Let them eat cake” may have been the famous last words of Binance’s compliance officer before Binance’s guilty plea which is part of coordinated resolutions with the Department of the Treasury’s FinCEN and Office of Foreign Assets Control and the US Commodity Futures Trading Commission.
Binance’s settlement resulted in client fund outflows of more than $1 billion, similar to when the Security Exchange Commission charged Binance and its founder earlier in June, with mishandling customer funds and lying to regulators. As Secretary of the Treasury Janet L. Yellen noted:
“Today’s historic penalties and monitorship to ensure compliance with US law and regulations mark a milestone for the virtual currency industry. Any institution, wherever located, that wants to reap the benefits of the US financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime, or face the consequences.”
Binance’s legal problems with the SEC still remain unresolved.
