The Justice Department and the U.S. Treasury Department is investigating Binance and CryptoZel’dovich (CZ) in two separate criminal cases
The charges include accusations that Binance and CZ did not clearly separate its U.S. and international businesses as required by current regulations, and allowed illicit activities such as money laundering to take place at the crypto exchange.
“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 attorney general said. “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 company admitted that it did not maintain an effective anti-money laundering program which allowed bad actors, including terrorist organizations, to move money through the platform.
The company could still be in trouble with the SEC as a result of the deal.
It has no official headquarters, and CZ — who has become a well known player in crypto — has spent much of his adult life moving from city to city, mostly in Asia and the Middle East.
After FTX collapsed, the company saw its market share grow. Users fled other cryptocurrencies as the SEC and others scrutinized their business.
The announcement from the Department of Justice, Treasury Department and Commodity Futures Trading Commission comes less than a month after federal prosecutors convinced a jury to find CZ’s one-time rival, FTX founder Sam Bankman-Fried, guilty of seven criminal charges, including fraud and money laundering.
“The result of these agreements will be an end to company behavior that has posed risks to the U.S. financial system, U.S. citizens, and our country’s national security for too long,” said Treasury Secretary Janet Yellen, in a statement.
“If virtual currency exchanges and financial technology firms wish to realize the tremendous benefits of being part of the U.S. financial system and serving U.S. customers, they must play by the rules,” Yellen said. If they don’t, the U.S. government will take action.
A deferred prosecution agreement, says Paul Tuchmann, a former US prosecutor and partner at law firm Wiggin and Dana, is typically deployed in cases where the DOJ determines “the collateral consequences of a criminal prosecution of a corporation are not worth it.” Taken into consideration will be the scope of potential “damages to innocent parties,” says Tuchmann, which might include “shareholders, employees, or consumers of the company’s services.” In short: Binance has become too big to fail.
The company also faces two civil lawsuits in the US, brought by the Commodities and Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), alleging, among other things, commingling of customer assets, anti-money-laundering violations, and artificially inflating trading volumes.
In the last year, Zhao had taken to responding to negative headlines on X, formerly Twitter, by posting “4”—a symbol he adopted to dismiss allegations made against the company as baseless FUD (shorthand for fear, uncertainty and doubt). But the DOJ investigation into Binance was an open secret in crypto circles, and Binance insiders say that staff have been anxiously waiting for charges to drop, amid a “general sense of doom.”
Under Zhao’s management, the DOJ alleges, Binance “caused, according to its own data, at least $890 million in transactions between US users and users Binance identified as Iranians.” The US imposed financial sanctions on Iran. Binance also allowed transactions between US users and counterparts in other sanctioned jurisdictions, including Cuba, Syria and illegally occupied regions of Ukraine, the indictment says.
It was announced on Tuesday that the company would pay a $4.7 billion fine as part of a settlement with the DOJ. Zhao has also stepped down from his role running the company.
The charging documents describe a company that allegedly turned a blind eye, sometimes willfully and knowingly, prosecutors claim, to the trading of funds from sanctioned countries and regions like Iran, Cuba, Syria, and the Russian-occupied areas of Ukraine such as Crimea and Donbas, as well as the now-defunct criminal dark web market Hydra.