The business that runs the biggest cryptocurrency exchange in the world, Binance.com, Binance Holdings Limited (Binance), entered a guilty plea today and consented to pay the Department of Justice's investigation costs and associated damages in excess of $4 billion. The failure to register as a money transfer business, the International Economic Rights Act (IEEPA), and the bank's secrecy policy.
Canadian Changpeng Zhao, the founder and CEO of Binance, also entered a guilty plea to violating the BSA and anti-money laundering (AML) regulations. As a result, Zhao lost his position as CEO of Binance.
The US Commodity Futures Trading Commission (CFTC), the Office of Foreign Assets Control (OFAC), and the Treasury's Financial Crimes Enforcement Network (FinCEN) United have joined forces to bring the Binance case.
Attorney General Merrick B. Garland stated, "Binance is paying one of the largest corporate penalties in U.S. history. Its crimes helped it become the largest cryptocurrency exchange in the world." The CEOs of two of the biggest cryptocurrency exchanges in the world have been successfully prosecuted by the Justice Department in two different criminal proceedings in as much as a month. This should send a very clear message: breaking the law using new technology does not make you a disruptor; rather, it makes you a criminal.
"Binance ignored its legal responsibilities in order to maximize profits. Treasury Secretary Janet L. Yellen stated, "Its deliberate mistakes allowed money to flow to terrorists, cybercriminals, and child abusers through its platform." "Today's historic fines and oversight to guarantee adherence to US laws and regulations represent a turning point for the virtual currency market. Any organization, wherever it may be, that wishes to profit from the American financial system must abide by the laws that protect us all from criminal activity, terrorist attacks, and foreign enemies.
Deputy Attorney General Lisa O. Monaco declared, "A corporate strategy that puts profits over compliance isn't a path to riches; it's a path to federal prosecution." "The accusations and guilty pleas made today, along with the financial penalty of over $4 billion, send a clear message to cryptocurrency and defi companies: if you serve U.S. customers, you must abide by U.S. law."
Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department's Criminal Division stated, "Changpeng Zhao made Binance, the company he founded and ran as CEO, into the largest cryptocurrency exchange in the world by targeting U.S. customers, but refused to comply with U.S. law." "Binance and Zhao have both entered guilty pleas in relation to their deliberate breaches of anti-money laundering and sanctions laws, which put our national security and the U.S. financial system at risk. Do not misunderstand: you will be held accountable for your crimes in the United States if you prioritize your profits over following the law.
"Binance's crimes gave illegal traders access to US capital and financial services," said Assistant Attorney General Matthew G. Olsen of the Justice Department's National Security Division (NSD). "This case is a warning: companies that do not combine compliance and restrictions in their work receive serious criminal penalties, as do the leaders who manage them. »
"From the beginning of its existence, Binance and its founder Changpeng Zhao chose growth and personal wealth over compliance with financial laws to stop money laundering," said US Attorney Tessa M. Gorman for the Western District. of Washington. "Because Changpeng Zhao deliberately operated a financial system without basic security measures to prevent money, the company caused illegal transactions between US officials and officials and authorities jurisdictions such as Iran, Cuba, Syria and the Ukrainian territories owned by Russia - the transactions of Binance benefited from large fees.
"The Binance incident broke the foundation of a safe and sound financial market by carefully avoiding the basic and important functions that affect the exchange, while collecting about $ 1.35 billion in market fees by US traders," said Commodity Futures Trading Commission Chairman Rostin Behnam. CFTC). “Investors in the United States, large and small, have shown an eagerness to integrate digital assets into their portfolios. It is our responsibility to ensure that, when they do, all the protections that our legal care provides are in place and that this will be dealt with promptly against illegal and unethical practices. When, as here, a company goes ahead, deliberately avoids using effective access controls, avoids knowing the identity of customers, and hides the presence of US customers on platforms it, there is no doubt that the CFTC will beat. strength and power. "
"When you put growth ahead of compliance, you find yourself in a very difficult position," said Chief Jim Lee of IRS Criminal Investigation (IRS-CI). "Our investigative team found that Binance ignored the Know Your Money Brokers Act, registered as a money transfer agent, and deliberately violated US restrictions related to the Emergency International Economic Rights Act. When you do this, your business becomes a playground for criminals. Hundreds of millions of dollars in ill-gotten gains from ransomware, darknet transactions, and various forms of Internet-related fraud have passed through Binance in an attempt to evade detection by law enforcement.
According to court documents, Binance admitted that it drives growth and profits over compliance with US law. Binance was launched in 2017 and focused on attracting a large number of customers, including customers based in the United States. Binance has quickly become the largest cryptocurrency exchange in the world, with most of its customers from the United States. As a US client, Binance is required to register with FinCEN as a financial services business and implement an effective AML program specifically designed to prevent the use of Binance to facilitate money laundering. Binance has chosen not to comply with US laws and has not implemented controls and measures to prevent money laundering. Binance also failed to implement controls that would have prevented U.S. customers from interacting with licensed customers, even though it knew that the process it used to compare customers for transactions would have made it a transaction in violation of the IEEPA. .
Instead of following US regulations, in 2019 Binance announced that it would ban US customers and launch a separate US exchange, Binance.US. Despite this announcement, Binance has taken steps to retain a large number of US customers. In particular, Binance focuses on retaining valuable "VIP" customers, who account for a large portion of Binance's trading volume and revenue. These VIP customers are important to Binance trading because they help bring in the necessary capital to support digital asset trading. For example, Binance executives, including Zhao, planned to contact VIP customers and help VIPs create new accounts for offshore companies and transfer their assets to the account. Binance officials also called American statistics to encourage them to provide information that proves the customer is not in the United States. Binance also failed to implement the basic elements of an effective AML program: Binance did not implement know-your-customer (KYC) standards or properly monitor transactions, and Binance did not file a suspicious activity report (SAR) with FinCEN. For years, Binance has allowed users to open accounts and trade without submitting any credentials beyond an email address. Binance began requiring all users to provide KYC information in August 2021, but allowed users who had not provided KYC to continue trading on the exchange until May 2022. Between August 2017 and October 2022, US users, including VIPs, have made multi-billion dollar trades on the exchange. the platform, generating over $1.6 billion in profits for Binance.
As Binance's internal communication revealed, Binance's compliance staff acknowledged that Binance does not have a legal system to display or report transactions and withdrawal risks, which staff said would attract criminals to the market. . As one compliance officer wrote, "we need a banner 'it's hard to launder drug money these days - come to Binance, we got you cake'". Partly due to Binance's failure to implement an effective AML program, Binance exchanges have been used by illegal actors. in different ways, including conducting business that combines services that cover the source and ownership of cryptocurrency; transfer illegal funds through ransomware; and moving to gain from darknet marketing, exchange hacks, and various Internet-related scams. Binance is also aware that US sanctions prohibit US persons - including US clients - from trading with its clients under US sanctions, including clients in highly sanctioned jurisdictions, such as Iran. Binance knows that it has a significant number of users from the full license and a large number of US users, and that its connecting engine must lead US users to connect with users and licenses right to compromise, contrary to US law. However, Binance has not implemented controls that would prevent US users from trading with Iranian users; and, as a result of this deliberate failure, between January 2018 and May 2022, Binance intentionally caused more than $898 million in transactions between US users and users usually residing in Iran.
As part of the settlement agreement, Binance agreed to forfeit $2,510,650,588 and pay criminal damages of $1,805,475,575 for a financial settlement of $4,316,126,163. Binance also agreed to maintain the role of its independent compliance monitor for three years and to revise and improve its anti-money laundering and sanctions compliance program. Binance has reached settlements with the CFTC, FinCEN, and OFAC, and the department will pay up to $1.8 billion for these decisions.
The information reached its decision on Binance based on several factors, including the nature, seriousness and seriousness of the breach, as a result of which Binance processes billions of dollars in transactions in cryptocurrency for US citizens and allows US customers to enter hand in business. . in violation of US law. Binance did not voluntarily and timely disclose the wrongdoing, but received partial credit for its cooperation with the department's investigation and took steps to improve its compliance program. Binance didn't get enough credit for its support because it was slow to produce important evidence, including recorded meetings in which Binance executives discussed US legal requirements. As a result, total criminal penalties reflect a 20% reduction from the lower end of the fine range consistent with the US Sentencing Guidelines.
In addition, according to court documents, Zhao, the founder, owner and CEO of Binance, admitted that he understood that Binance served US officials and was therefore required to register with FinCEN and implement an effective AML program. Zhao knows that US users are very important to the growth of Binance and is an important source of income and knows that an effective AML program will include a KYC process that will mean that some customers will choose not to use Binance. Zhao told employees that it is "better to apologize than to be right" and prioritize growing Binance over complying with US laws. Without an effective AML program, Binance facilitated transactions between US users and users subject to US jurisdiction. These illegal transactions are a clear and predictable result of Zhao's decision to prioritize Binance's profit and growth over compliance with the BSA.
The matter is being investigated by the IRS-CI. The case is being prosecuted by the deputy head of the Banking Integrity Unit and the deputy head of the National Cryptocurrency Enforcement Team, Kevin Mosley, and Attorney Elizabeth Carr of the Division of Money Laundering and Money Laundering (MLARS) of the Department Criminal, Trial. Attorneys Beau Barnes and Alex Wharton of the NSD Counterintelligence and Export Control section (CES) and Assistant United States Attorney (AUSA) Mike Dion for the Western District of Washington. Trial Attorney Julia Jarrett, former member of MLARS and now AUSA for the District of Oregon, and Attorney General Matthew Anzaldi, former CES and now in the Cybersecurity Division of NSD National Security, made significant contributions to the investigation in this case. .
The MLARS Banking Integrity Unit investigates and prosecutes banks and other financial institutions, including their directors, officers, and employees, whose actions threaten the integrity of the institution and it's the financial system as a whole. The Department of Criminal Justice has increased its resources in the Banking Enforcement Division, which has approved more than $12 billion in sanctions against financial institutions for violations of the law in the past decade. NSD's Export and Export Enforcement Division investigates and prosecutes individuals and companies for violations of export control and sanctions laws, in addition to other national security crimes. NSD continues to expand its corporate enforcement efforts, including expanding the ranks of attorneys dedicated to this role and establishing a Counsel and Deputy Counsel for Corporate Enforcement.
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