Zhao Changpeng, founder and CEO of Binance, speaks at the Blockchain Week Summit in Paris, France, Wednesday, April 13, 2022.
Benjamin Girette | Bloomberg | Getty Images
Binance chief Changpeng Zhao will plead guilty to criminal charges and resign as CEO of the company as part of a $4 billion settlement with the Justice Department, according to court documents. The plea agreement with the government ends a multi-year investigation into the world’s largest crypto exchange.
Zhao and others are accused of violating the Bank Secrecy Act by failing to implement an effective anti-money laundering program and of willfully violating U.S. economic sanctions “in a deliberate and calculated to profit from the U.S. market without implementing the controls required by U.S. law.” ” according to the Department of Justice.
The charges follow civil suits filed earlier this year by the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Binance has been at the center of intense regulatory scrutiny over its operation, with officials in several jurisdictions raising concerns about the company’s enthusiastic attitude toward launching in some markets, even when it doesn’t does not have the authority to do so, and allegations of involvement in illicit transactions. such as money laundering and securities fraud.
The Securities and Exchange Commission targeted the company in a broad lawsuit in June, alleging that Binance ran an illegal securities exchange and mismanaged customer funds. Shortly after, the SEC filed a similar lawsuit against rival exchange Coinbase, alleging that it operated as an unauthorized securities exchange, broker-dealer and clearing agency. And just this week, the SEC sued Kraken, claiming the exchange mixed $33 billion in customer crypto assets with its own company’s assets, creating a significant risk of loss for its users.
In the 13 charges filed against Binance by the SEC, the agency accused Binance of mixing billions of dollars of customer money with Binance’s own funds, similar to allegations made against crypto exchange FTX, today now bankrupt. SEC Chairman Gary Gensler added: “The Zhao and Binance entities engaged in a vast web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. »
Founded by a 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 largest crypto exchange in the world, processing billions of dollars in trading volume each year. The exchange has taken an aggressive approach to growth, rapidly expanding its reach globally, often without obtaining prior approval.
Although its holding company is based in the Cayman Islands, Binance does not have a single global headquarters and Zhao has often resisted calls to do so, saying he wants the platform to operate under a “decentralized” operating model.
In 2021, the UK’s Financial Conduct Authority banned Binance’s UK unit from operating in the country, saying it was not authorized to carry out regulated activities. Most recently, Binance abandoned plans to obtain a full license in the UK after the regulator said its know-your-customer and anti-money laundering checks did not meet its requirements.
In the CFTC’s complaint, the regulator alleged that Binance, Zhao and the company’s former chief compliance officer, Samuel Lim, operated an “illegal” exchange, ran a “sham” compliance program and allegedly violated the law on commodity exchanges, including laws. designed to prevent and detect money laundering and terrorist financing.
Binance and Zhao filed a motion in July to dismiss the CFTC’s complaint. The U.S. arm of the exchange is also opposing the SEC’s lawsuit, filing a protective order against what it calls the SEC’s “fishing expedition.”
The implications of the agency’s crypto crackdown for myriad tokens and blockchains – not just exchanges – are particularly concerning for the crypto industry. The SEC maintains that several of the tokens offered by Binance and Coinbase 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.
This is breaking news. Please check again for updates.
— CNBC’s Kevin Breuninger contributed to this report.