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Binance CEO Changpeng Zhao pleads guilty to felony charges
WASHINGTON (AP) — The U.S. government dealt a blow to Binance, the world’s largest cryptocurrency exchange, which on Tuesday agreed to pay a sum of about $4 billion after its founder and CEO Changpeng Zhao pleaded guilty to a crime related to his failure to prevent money laundering on the platform.
Zhao resigned after the company’s CEO and Binance admitted violations of the Bank Secrecy Act and apparent violations of sanctions programs, including failing to implement reporting programs for suspicious transactions.
“Using new technology to break the law doesn’t make you a disruptor, it makes you a criminal,” said U.S. Attorney General Merrick Garland, who called the settlement one of the largest corporate sanctions in the nation’s history.
As part of the settlement agreement, the US Treasury said Binance will be subject to five years of monitoring and “significant compliance commitments, including to ensure Binance’s complete exit from the United States.” Binance is a Cayman Islands limited liability company.
The cryptocurrency industry has been marred by scandals and market crashes.
Zhao was perhaps best known as the chief rival of Sam Bankman Fried, the 31-year-old founder of FTX, the second largest cryptocurrency exchange before its collapse last November. Bankman-Fried was convicted earlier this month of fraud for stealing at least $10 billion from customers and investors.
Zhao, meanwhile, pleaded guilty in federal court in Seattle on Tuesday to failing to maintain an effective anti-money laundering program.
Magistrate Judge Brian A. Tsuchida questioned Zhao to make sure he understood the plea deal, saying at one point, “You knew you had no controls in place.”
“Yes, your honor,” he replied.
Binance wrote in a statement that it made “poor decisions” as it rapidly grew to become the world’s largest cryptocurrency exchange, and said the settlement recognizes its “liability for historic and criminal compliance violations.”
US Treasury Secretary Janet Yellen said Binance processed transactions by illicit actors, “supporting activities from child sexual abuse, to illegal narcotics, to terrorism, across more than 100,000 transactions.”
Binance did not file a single suspicious activity report on such transactions, Yellen said, and the company enabled more than 1.5 million virtual currency trades that violated U.S. sanctions, including those involving Hamas’s al-Qassam Brigades , al-Qaeda and other criminals.
The judge set Zhao’s sentencing for February 23, but it is likely to be postponed. He faces a possible sentence of up to 18 months.
One of his lawyers, Mark Bartlett, noted that Zhao had been aware of the investigation since December 2020 and voluntarily surrendered even though the United Arab Emirates, where Zhao lives, does not have an extradition treaty with the United States.
“He decided to come here and face the consequences,” Bartlett said. «He IS sitting here. He pleaded guilty.
Zhao, who is married and has young children in the United Arab Emirates, vowed that he would return to the United States for the sentencing if he was allowed to stay there in the meantime.
“I want to take responsibility and close this chapter of my life,” Zhao said. “I want to go back. Otherwise I wouldn’t be here today.”
Zhao had previously faced accusations that he had siphoned off client funds, hiding the fact that the firm was commingling billions of dollars in investor assets and sending them to a third party owned by Zhao.
Over the summer, Binance was accused of operating as an unregistered stock exchange and violating a number of US securities laws in a lawsuit by regulators. That case was similar to practices discovered after FTX’s collapse.
Zhao and Bankman-Fried were originally friendly competitors in the industry, with Binance investing in FTX when Bankman-Fried launched the exchange in 2019. However, the relationship between the two deteriorated, culminating in Zhao announcing that he would sell all of his cryptocurrency investments in FTX in early November 2022. FTX filed for bankruptcy a week later.
In this trial and in subsequent public statements, Bankman-Fried sought to blame Binance and Zhao for allegedly orchestrating a bank run at FTX.
A jury found Bankman-Fried guilty of wire fraud and numerous other charges. He is scheduled to be sentenced in March, and he faces decades in prison.
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Johnson contributed from Seattle. Associated Press writer Ken Sweet in New York contributed to this story.