Binance chief Changpeng Zhao will plead guilty to criminal charges and step down as the company’s CEO as part of a $4.3 billion settlement with the Department of Justice, according to court documents. The plea arrangement with the government resolves a multi-year investigation into the world’s largest crypto exchange.
Zhao and others are charged with violating the Bank Secrecy Act by failing to implement an effective anti-money laundering program and for willfully violating U.S. economic sanctions “in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law,” according to the Justice Department.
The former Binance chief will personally plead guilty to violating and causing a financial institution to violate the Bank Secrecy Act, according to the plea agreement. The DOJ is also recommending that the court impose a $50 million fine on Zhao.
Binance will continue to operate but with new ground rules. The company will be required to maintain and enhance its compliance program to ensure its business is in line with U.S. anti-money laundering standards. The company is required to appoint an independent compliance monitor.
The case against Binance, which was unsealed on Tuesday afternoon, shows that the exchange faces three criminal charges, including conducting an unlicensed money-transmitting business, violating the International Emergency Economic Powers Act, as well as a conspiracy charge.
Binance has agreed to forfeit $2.5 billion to the government, as well as to pay a fine of $1.8 billion.
Binance will continue to operate but with new ground rules. The company is required to maintain and enhance its compliance program to ensure its business is in line with U.S. anti-money laundering standards. The company will also be required to appoint an independent compliance monitor.
The U.S. DOJ said in its filing Tuesday that Binance “knowingly and willfully” caused the supply of services to Iran, in breach of U.S. sanctions. It follows a report that Binance processed billions’ worth of Iranian transactions.
The government moved to keep the cases under seal until hearings begin in open court. Since the plea deal has been unsealed, it implies the hearings have started.
CNBC reached out to Zhao for comment but did not immediately hear back. Binance did not respond to several CNBC requests for comment.
The charges follow civil suits brought earlier this year by both the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Binance has been the center of intense regulatory scrutiny over how it operates, with officials in multiple jurisdictions flagging concerns with the company’s gung-ho attitude to launching in certain markets even when it lacks the authority to do so, and allegations of involvement in illicit dealings such as money laundering and securities fraud.
The Securities and Exchange Commission targeted the company with an expansive lawsuit in June, alleging that Binance was running an illegal securities exchange and mishandling customer funds. The SEC hit rival exchange Coinbase with a similar lawsuit shortly after, alleging it is operating as an unauthorized securities exchange, broker and clearing agency.
And just this week, the SEC sued Kraken, claiming that the exchange commingled $33 billion in customer crypto assets with its own company assets, creating the potential for a significant risk of loss to its users.
In the 13 charges brought against Binance by the SEC, the agency accused Binance of commingling billions of dollars in customer money with Binance’s own funds, similar to allegations made against the now-bankrupt crypto exchange FTX. SEC Chair Gary Gensler added, “Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”
Started by Chinese-born entrepreneur in 2017, Binance went from a relatively obscure name to a major force in crypto in a matter of weeks. To this day, Binance remains the world’s largest crypto exchange globally, processing billions of dollars in trading volume every year.The exchange took an aggressive approach to growth, rapidly expanding its reach globally often without gaining permission first.
While its holding company is based in the Cayman Islands, Binance doesn’t have a single global headquarters and Zhao has frequently resisted calls to do so, saying he wants the platform to run on a “decentralized” operating model.
In 2021, the U.K.’s Financial Conduct Authority barred Binance’s U.K. unit from operating in the country, saying it wasn’t authorized to carry out regulated activities. More recently, Binance scrapped plans to pursue a full U.K. license after the regulator said its know-your-customer and anti-money laundering controls didn’t meet its requirements.
In the CFTC’s complaint, the regulator alleged that Binance, Zhao, and the company’s ex-chief compliance officer, Samuel Lim, operated an “illegal” exchange, ran a “sham” compliance program, and allegedly violated the Commodity Exchange Act including laws “designed to prevent and detect money laundering and terrorism financing.”
Binance and Zhao filed a motion in July to dismiss the CFTC’s suit. The U.S. arm of the exchange is also pushing back on the SEC’s lawsuit, filing a protective order against what they call the SEC’s “fishing expedition.”
Of particular concern for the crypto industry are the implications of the agency’s crackdown on crypto for myriad tokens and blockchains — not just the exchanges. The SEC maintains that several of the tokens Binance and Coinbase offer on their platforms — such as Solana’s sol, Cardano’s ada, and Polygon’s matic — are securities that should have been registered with the agency.
— CNBC’s Kevin Breuninger contributed to this report.
