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Binance chief executive Changpeng Zhao has resigned and pleaded guilty to a US criminal charge of failure to protect against money laundering after federal prosecutors unveiled a sweeping case against the world’s largest cryptocurrency exchange.
The company also pleaded guilty to criminal charges related to money laundering and breaching international financial sanctions, agreeing to pay more than $4.3bn in penalties, US authorities said on Tuesday.
Within five years, Binance grew from a start-up into an exchange giant with employees in dozens of countries. It controlled more than half of the crypto market in November 2022.
Yet its success has for years been shrouded in secrecy — the company has insisted it has no headquarters and has engaged in countless clashes with regulators around the world.
The crypto sector’s links to terror financing have been under renewed scrutiny following Hamas’s attack on Israel last month. In the aftermath of the attack, Israel shut more than 100 Binance accounts, the Financial Times reported.
The US Treasury department on Tuesday said the exchange failed to report “well over 100,000 suspicious transactions” linked to ransomware attacks, child sexual abuse, large-scale hacks, the narcotics trade and groups including al-Qaeda and Isis.
“In part because of the crimes committed, Binance became the largest cryptocurrency exchange in the world,” said US attorney-general Merrick Garland. “Now, Binance has paid one of the largest corporate penalties in US history.”
Zhao, one of the crypto industry’s most outspoken and influential leaders, entered his plea in a federal court in Seattle on Tuesday and agreed to pay a $50mn fine. “I made mistakes, and I must take responsibility,” he said on the social media platform X, affirming he had stepped down.
Zhao is barred from involvement in Binance management under the terms of his plea agreement. But according to sentencing guidelines, he could face up to 18 months of imprisonment, a Department of Justice official said. Zhao on Tuesday signed a $175mn personal recognisance bond, allowing his release from custody until his sentencing hearing on February 23, 2024.
Richard Teng, who previously served as Binance’s global head of regional markets, will replace Zhao as CEO.
The justice department in 2021 set up a unit focused on criminal misuse of digital assets, as the US emerged as one of the jurisdictions with the toughest stance on crypto worldwide. A jury this month convicted Sam Bankman-Fried, a rival of Zhao’s, on charges of fraud and money laundering in the wake of the collapse of his FTX exchange.
“Using new technology to break the law does not make you a disrupter,” Garland said on Tuesday. “It makes you a criminal.”
Tuesday’s agreements also resolve a case brought by the Commodity Futures Trading Commission, which in March accused Binance and Zhao of operating illegally in the US. The CFTC’s civil complaint alleged that much of the group’s reported trading volume and profitability came from “extensive solicitation of and access to” US customers, contradicting the exchange’s claims.
In June, the US Securities and Exchange Commission filed 13 civil charges accusing Binance of violations including mixing billions of dollars of customer cash with a separate trading firm owned by its chief executive and operating unregistered exchanges, broker-dealers and clearing agencies. The SEC was not named in the resolutions announced on Tuesday and declined to comment.
Binance admitted to anti-money laundering, unlicensed money transmitting and sanctions violations, authorities said. The alleged misconduct occurred between at least August 2017 and October 2022, according to court filings.
Mark Kornfeld of law firm Buchanan Ingersoll and Rooney said: “DoJ action against the main crypto player is a very significant development for this industry as a whole. This is proof that this is the new normal, not just a random development for the industry. Everyone is on pretty significant notice that this is the way it’s going to be.”
In its March lawsuit, the CFTC also alleged Binance knowingly facilitated potentially illegal activities. In one instance in 2019, Binance received information “regarding Hamas transactions”. A Binance employee allegedly dismissed the risk and said the group “can barely buy an AK-47 with 600 bucks”.
One year later, the CFTC said a Binance executive said certain customers — including some from Russia — were “here for crime”. A colleague allegedly replied: “We see the bad, but we close two eyes.”
Additional reporting by James Politi in Washington