Changpeng Zhao, founder of Binance, the world’s largest cryptocurrency exchange, agreed to plead guilty to money laundering violations on Tuesday, according to the court papers filed in federal court in Seattle.
The filing said as part of a guilty plea Zhou agreed to pay a $50m fine, step down from his role as chief executive of the company, and would be barred from any involvement in the business.
As part of its plea deal with the government, Binance too agreed to plead guilty, accept the appointment of a monitor and pay a criminal fine of nearly $1.81bn as well as a $2.51bn order of forfeiture to settle three criminal charges, including conducting an unlicensed money transmitting business, a conspiracy charge and violating the International Emergency Economic Powers Act.
The announcement is another huge blow for the cryptocurrency sector. The settlement with Binance comes less than a month after Sam Bankman-Fried was convicted on seven counts of fraud and conspiracy for his part in the collapse of FTX, a trading platform that had been second only in size to Binance. The FTX founder faces 115 years in prison when he is sentenced next year.
Changpeng Zhao, or CZ, played a significant role in FTX’s collapse. He was given the opportunity to look over FTX’s books shortly before it collapsed. But he declined to step in, and ensured the collapse of the smaller rival when he tweeted that Binance was dumping its position in FTX’s house token, FTT.
Changpeng Zhao and Bankman-Fried, though strikingly opposite in character and appearance, had both promised a rosy future for digital currencies that some predicted could replace sovereign currencies.
But financial regulators and prosecutors did not see it that way.
When charges against Bankman-Fried were announced in December of last year, the US attorney Damian Williams said the “phenomenal downfall” of the cryptocurrency exchange and the criminal charges that followed were “not a case of mismanagement or poor oversight, but of intentional fraud, plain and simple”.
Binance has been under justice department’s scrutiny since at least 2018, just one of a string of legal and regulatory headaches it faces in the US.
Federal prosecutors asked the company in December 2020 to provide internal records about its anti-money laundering efforts, along with communications Changpeng Zhao.
Financial regulator the Commodities Futures Trading Commission (CFTC) filed civil charges against Binance in March, alleging it failed to implement an effective anti-money laundering program to detect and prevent terrorist financing. Internally, Binance officers and employees acknowledged that the platform facilitated “potentially illegal activities”, the CFTC alleged.
In February 2019, Binance’s former chief compliance officer Samuel Lim received information on transactions by the militant Palestinian group Hamas on Binance, the CFTC wrote.
Zhao, a billionaire who was born in China and moved to Canada at the age of 12, said the CFTC’s “complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged”.
