In a significant development, Binance CEO Changpeng Zhao (CZ) has stepped down from his position as part of a settlement with the U.S. Department of Justice (DOJ). The settlement resolves a multiyear investigation into the world’s largest cryptocurrency exchange, which was accused of facilitating transactions with sanctioned groups and failing to adequately prevent money laundering.
Under the terms of the agreement, Binance will pay a $4 billion fine and admit to violating the Bank Secrecy Act. The company will also be required to implement a series of compliance measures to improve its anti-money laundering (AML) and Know Your Customer (KYC) procedures.
CZ pleaded guilty to the failure to maintain an effective anti-money laundering program in a Seattle federal court on Tuesday. As part of a comprehensive settlement to address various investigations into the cryptocurrency exchange, he has agreed to pay a $50 million (£39.9 million) fine and step down from his role at Binance. This is the second time in less than a month that a prominent figure in the crypto industry has been brought down by US prosecutors.
This marks a remarkable decline for one of the remaining leaders in the cryptocurrency sector. Zhao has now joined the ranks of crypto entrepreneurs whose careers have come to an end in US courts amid the recent conviction of former FTX chief Sam Bankman-Fried on multiple fraud charges.
Being a competitor of Mr. Bankman-Fried, Zhao played a key role in the downfall of FTX. His tweet announcing that Binance was offloading a token issued by FTX raised alarms about the exchange’s financial stability, ultimately contributing to the unraveling of the company last year.
The Attorney General of the United States, Merrick B. Garland, conveyed the following in a statement: “In just the past month, the Justice Department has successfully prosecuted the CEOs of two of the world’s largest cryptocurrency exchanges in two separate criminal cases […] The message here should be clear: using new technology to break the law does not make you a disruptor, it makes you a criminal.”
The resolution of Binance’s deal marks the conclusion of a series of legal disputes between the company and U.S. authorities. These legal challenges encompassed a lawsuit from the U.S. Commodity Futures Trading Commission (CFTC) that was filed in April. In the suit, the CFTC accused Binance of neglecting fundamental compliance measures to prevent potential financing of terrorism and money laundering.
The U.S. Treasury stated that Binance permitted transactions involving Hamas’ military wing, al-Qassam Brigades, Palestinian Islamic Jihad, al-Qaeda, and other criminal entities. In a statement, Treasury Secretary Janet Yellen said:
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.
Garland added, “Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed – now it is paying one of the largest corporate penalties in US history.” Officials also noted that Binance had accrued approximately $1.35 billion in fees from its U.S. customers.
In response, Zhao confirmed in a statement posted on Twitter: “Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.”
The company attributed its previous shortcomings to the fact that it “grew at an extremely fast pace globally, in a new and evolving industry that was in the early stages of regulation.” It also acknowledged being responsible for “misguided decisions along the way.”
According to the Department of Justice, Binance’s guilty plea is part of a coordinated effort involving the Treasury Department’s Financial Crimes Enforcement Network and the Office of Foreign Assets Control (OFAC).
Established in 2017, Binance, operating from an offshore location, experienced rapid growth but has consistently faced controversy. The UK’s Financial Conduct Authority (FCA) has issued official warnings, preventing its launch in the UK and cautioning that it presents a “significant risk” to consumers. The firm had to halt the onboarding of new UK customers back in October when the FCA revoked approvals for a partner company with which it was collaborating.
Digital coins have frequently been criticized for their potential use by criminals to evade detection, and consumers have fallen victim to cryptocurrency scams, losing hundreds of millions of pounds. Unsurprisingly, the cryptocurrency industry has come under increasing scrutiny following the downfall of FTX.
What does this mean for the future of Binance?
CZ’s resignation is a major turning point for Binance, and it is unclear what the future holds for the company. The settlement with the DOJ is a significant step forward, but it is still possible that the company will face further enforcement actions.
The departure of CZ could also lead to internal instability at Binance, as the company struggles to find a new leader. In the meantime, Binance will need to focus on implementing the compliance measures required by the DOJ settlement.
The future of Binance is uncertain, but the company is facing a number of challenges that could threaten its future success.