Often, when victims transfer cryptos to investment scammers or pay ransoms to hackers, the funds end up in a Binance wallet. This trend has been noticeable since the crypto exchange’s inception in 2017, suggesting that the platform has been accommodating to criminals. We have been closely monitoring the activities surrounding the business for years and, quite frankly, anticipated the Department of Justice (DOJ) to apprehend Changpeng ZhaoZhen almost daily. The recent actions of the U.S. authorities against Binance and its founder were not surprising to us. Honestly, we anticipated a more aggressive approach from the authorities. However, upon reviewing the plea agreement reached with Binance, it becomes clear that the U.S. authorities have adopted a more strategic approach. Their plan not only aims to dismantle Changpeng ZhaoZhen’s operations and his crypto exchange but also involves leveraging substantial fines to transform the exchange into a valuable intelligence source for future regulatory actions within the cryptocurrency industry.
Actions against Binance
The US authorities took several actions against Binance in 2023:
On March 27, 2023, The Commodity Futures Trading Commission announced it had filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois, charging Changpeng Zhao and three entities that operate the Binance platform with numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations.
On June 5, 2023, The U.S. Securities and Exchange Commission (SEC) filed 13 charges against Binance and Changpeng Zhao. These charges encompass operating unregistered exchanges, broker-dealers, and clearing agencies, misrepresenting trading controls and oversight on the Binance.US platform, and the unregistered offer and sale of securities.
On November 14, 2023, the Department of Justice, Criminal Division, Money Laundering and Asset Recovery Section (“MLARS”) filed charges against Binance for operating an unlicenced Money Service Business, for willfully violating the Banking Secrecy Act by failing to implement and maintain an effective Anti-Money-laundering program, and intentionally caused violations to US economic sanctions.
The plea agreements!
On November 21, 2023, the US Treasury, through the Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), announced unprecedented actions against Binance Holdings Ltd. (Binance), its affiliates and its CEO Changpeng ZhaoZhen for violations of U.S. anti-money laundering and sanctions laws.
Binance, the world´s largest virtual currency exchange, and its Changpeng ZhaoZhen pleaded guilty in what was called by Janet L. Jellen, the Secretary of the US Treasury, “the world’s largest enforcement action in the US history.”
Binance has agreed to enter into plea agreements with FinCEN and OFAC for $3.4 billion and $968,618,825, respectively. Changpeng ZhaoZhen had to step down and may go to jail for serveral months.
Never in the history of the U.S. Treasury have such massive sums been assessed against an organization. The combined, multi-billion dollar plea agreement—imposed alongside other terms and in combination with the resolution of related criminal and civil matters before the Department of Justice (DoJ) and Commodity Futures Trading Commission (CFTC)— reflect the enormity and aggravated nature of the 1,667,153 apparent AML and sanctions violations the world largest cryptocurrence exchange accrued while conducting its global affairs.
The announcements made by the US authorities stressed the wrongdoings of Binance:
Binance has matched virtual currency trades on its online exchange platform willfully – in order to become the world´s biggest crypto exchange – thereby violating multiple sanctions programs by allowing prohibited transactions involving users from embargoed destinations. Specifically, Binance’s conduct is alleged to have violated sanctions programs that target Iran, Syria, North Korea, Cuba, the Crimea region of Ukraine, and the Donetsk and Luhansk People’s Republics.
Binance also appeared to have violated FinCEN requirements by operating as an unregistered MSB and failing to report any suspicious transactions to FinCEN through suspicious activity reports. These transactions are related to terrorist financing, ransomware, child sexual abuse materials, dark net markets, scams, and other illicit activity.
OFAC found the apparent violations were egregious because Binance demonstrated awareness of and willful disregard for U.S. requirements. The penalties were further increased because these apparent violations were not voluntarily disclosed.
In addition to the hefty monetary sum, the splea agreement and its Appendices impose a massive amount of monitoring and compliance commitments.
Binance must engage an independent monitor to report directly to the US authorities. To ensure that Binance fulfills the terms of its settlement — including that it does not offer services to U.S. persons — ensuring that illicit activity is addressed, and enabling the US Treasury to retain access to books, records, and systems of Binance for five years through a monitor.
Binane must implement a restrictive compliance program to minimize the risk of further violations.
Binance has to exit from the United States fully.
Binance has to redo all missed suspicious activity reports and, in the future, has to fulfill extensive disclosure and reporting requirements.
This development showcases the US authorities’ willingness to take aggressive enforcement action within the crypto industry. Wherever located, those that address US retail and business customers must ensure compliance with AML and sanctions. This is particularly true for money services businesses (MSB) that must adhere to KYC and suspicious transaction reporting requirements.
So, this gives hope that the US authorities will soon address the questionable on-and off-ramp entities like Mercuryo and ADVCash.