Changpeng Zhao Steps Down from Binance to Resolve US Illicit Finance Investigation

On Tuesday, prosecutors announced that Changpeng Zhao, the CEO of Binance, has resigned and admitted his guilt in violating U.S. anti-money laundering regulations. This development comes as part of a $4.3 billion settlement that aims to resolve a lengthy investigation into the activities of the largest cryptocurrency exchange globally.

Prosecutors described the deal, in which Zhao will personally pay $50 million, as one of the largest corporate penalties in U.S. history. It’s another blow to the crypto industry, which has been plagued by investigations stemming from the recent fraud of FTX founder Sam Bankman-Fried.

But several legal experts said it was a good outcome for Zhao, leaving his vast fortune intact and allowing him to keep his stake in Binance, the exchange he founded in 2017.

Binance violated US anti-money laundering and sanctions laws by failing to report more than 100,000 suspicious transactions with organizations described as terrorist groups in the US, including Hamas, al-Qaeda and the Islamic State of Iraq and Syria, officials said.

The exchange also never reported transactions with websites that sell child sexual exploitation material and was one of the biggest recipients of ransomware revenue, they said.

“Binance made it easy for criminals to move their stolen funds and illicit earnings through their exchange,” US Attorney General Merrick Garland said on Tuesday. “Binance also did more than just ignore federal law. It pretended to comply.”

Some of the charges, both criminal and civil, relate to practices first reported by Reuters in a series of articles in 2022.

The Justice Department, which negotiated the settlement with the Commodity Futures Trading Commission (CFTC) and the Treasury Department, is seeking an 18-month prison sentence for Zhao, the maximum sentence under federal guidelines, the New York Times reported.

The CFTC charged Samuel Lim, Binance’s former chief compliance officer, the agency said. Lim and his lawyer did not respond to requests for comment.

Prosecutors said Binance will pay $1.81 billion over 15 months and an additional $2.51 billion in forfeitures as part of the deal.

Zhao, a billionaire, was born in China and moved to Canada at the age of 12. He pleaded guilty in a Seattle court Tuesday afternoon.

“Today I resigned as CEO of Binance,” Zhao said on social media after the settlement was announced. “Yes, it wasn’t easy to let go emotionally. But I know it’s right. I made mistakes and I have to take responsibility. This is what’s best for our community, Binance and myself.”

Authorities have been investigating Zhao and Binance for years, but Zhao’s exit marks a dramatic development for one of the crypto industry’s most powerful figures and Binance. The transaction raises questions about the future of the crypto exchange, which he has tightly controlled.

Richard Teng, longtime head of Binance, will take over leadership of Binance, Zhao said in a post.

“These decisions acknowledge our company’s responsibility for historical criminal violations and allow our company to turn the page,” Binance said in a statement.

In a separate statement, Teng said his focus would be to “fund users to remain confident in the company’s financial strength, safety and security.”

ZHAO RETAINS BINANCE SHARE

Yesha Yadav, a law professor at Vanderbilt University, said that while the fine was very large, it appeared to be manageable for Binance.

“This deal…seems designed to give Binance a chance to live another day, while removing CZ, the innovator that has been so integrally tied to the growth of the business model,” he said.

However, since Zhao appears to be retaining his stake in Binance, it is possible that he may still be able to influence the company, Yadav added.

According to Forbes, Zhao is worth $10.2 billion.

Given the seriousness of the violations and the actors involved, Zhao appears to be “coming out of this pretty well” because the U.S. government likely had to entice him to come to the United States, said Robert Frenchman of Mukasey Frenchman LLP.

“He still has enormous wealth,” the Frenchman said. “He likely won’t spend too much time in a US prison. He will retain his stake in Binance, a company that has now resolved some of its biggest legal issues.”

Prosecutors likely weighed the benefit Zhao received against the possibility that he might not have surrendered otherwise, and the desire to get Binance to agree to pay a large sum, said Jeffrey Cohen, an assistant professor at Boston College Law School and a former federal prosecutor.

“If you can get a good number on the corporate fine, and the price is that the individual defendants take a slightly lower penalty, the government will make that calculation,” Cohen said.

‘POTENTIALLY ILLEGAL’

Reuters reported last year that Binance has been under Justice Department supervision since at least 2018, just one of the legal headaches it faces in the United States.

In December 2020, federal prosecutors asked the company to provide internal information about its anti-money laundering efforts as well as communications related to Zhao.

The CFTC filed its civil suit against Binance in March, alleging that it has failed to implement an effective anti-money laundering program to detect and prevent terrorist financing.

Internally, Binance officers and employees admitted that the platform facilitated “potentially illegal activity,” the CFTC alleged.

In February 2019, the CFTC wrote that Binance’s Lim received information about the transactions of the militant Palestinian group Hamas on Binance.

Singaporean Lim “explained to a colleague that terrorists usually send ‘small amounts’ because ‘large amounts are money laundering,'” the CFTC said in its March filing.

Daniel Silva, a partner at the law firm Buchalter and a former federal prosecutor, said the allegations could have supported Zhao’s charges with harsher penalties, such as fraud or money laundering.

“He was at risk of facing much more serious charges, and that’s why this ruling is very favorable to him,” Silva said.

Even so, the conviction of a company CEO is rare and underscores the Justice Department’s push under Democratic leadership to seek indictments against executives.

“The government is beating the drum about individual accountability,” said Kit Addleman, of the Haynes Boone law firm in Dallas.

He noted that the size of the fines makes it clear that the US government wants to rein in the crypto sector, and described the financial size of the deal as “reasonable”.