Tuesday, November 21, 2023
Binance Admits It Engaged in Anti-Money Laundering, Unlicensed Money Transmitting, and Sanctions Violations in Largest Corporate Resolution to Include Criminal Charges for an Executive
Remarks as Delivered
I am joined today by Treasury Secretary Janet Yellen, Deputy Attorney General Lisa Monaco, and CFTC Chairman Russ Behnam.
We are here today to announce that the Justice Department has secured felony guilty pleas from the world’s largest cryptocurrency exchange, Binance, and from its founder and CEO, Changpeng Zhao, also known as CZ.
Separate from the criminal enforcement actions the Justice Department is announcing today, Secretary Yellen and Chairman Behnam will also announce civil regulatory enforcement actions that the Treasury Department and the CFTC are taking against Binance.
While criminal and civil enforcement actions are subject to different legal standards, this collective effort represents the whole of government approach that we are taking to combat corporate crime.
Binance has agreed to plead guilty to willfully violating the Bank Secrecy Act, knowingly failing to register as a money transmitting business, and willfully violating the International Emergency Economic Powers Act.
These laws ensure that our financial institutions are not available to designated terrorist organizations, drug traffickers, and sanctioned nation-states that threaten public safety and our national security.
The Justice Department is requiring Binance to pay $4.3 billion in penalties and forfeiture. This is one of the largest penalties we have ever obtained from a corporate defendant in a criminal matter.
The Justice Department is also imposing a monitorship as well as reporting requirements on Binance as part of today’s resolution.
Moving forward, Binance must file the suspicious activity reports that were required by law. The company is required to review past transactions and report suspicious activity to federal authorities. This will advance our criminal investigations into malicious cyber activity and terrorism fundraising, including the use of cryptocurrency exchanges to support groups such as Hamas.
While this historic plea is an important measure of accountability, we know that corporations only act through the individuals who run them.
That is why we have also filed a felony charge against, and secured a guilty plea from, Changpeng Zhao for willfully violating the Bank Secrecy Act.
As CEO of Binance, Zhao willfully violated federal law that requires financial institutions to guard against money laundering and terrorist financing.
Zhao, who resides outside of the United States, entered his plea in person in the United States District Court for the Western District of Washington earlier today.
In August 2017, Zhao founded Binance as a platform where users could trade in cryptocurrency.
But from the very beginning, Zhao and other Binance executives engaged in a deliberate and calculated effort to profit from the U.S. market without implementing the controls required by U.S. law.
Zhao and Binance attracted and built a substantial U.S. customer base. Almost two years after Binance’s founding, Zhao told senior management that the U.S. market represented 20 to 30% of the company’s potential revenue.
Serving these U.S. customers meant that Binance was a U.S. financial institution. U.S. financial institutions must comply with U.S. law. Zhao and other senior management at Binance understood this.
They understood that the company was required by U.S. law to register with the Treasury Department as a money services business.
And they understood that they were required by U.S. law to implement an effective anti-money laundering program. They failed to do either.
Instead, they concluded that complying with U.S. law would stifle their efforts to grow Binance’s profits, market share, and trading volume.
So, rather than comply, Binance facilitated billions of dollars of unregulated cryptocurrency transactions.
It willfully enabled hundreds of millions of dollars in transactions between American users and users subject to U.S. sanctions.
And its platform accommodated criminals across the world who used Binance to move their stolen funds and other criminal proceeds.
Binance prioritized its profits over the safety of the American people.
In part because of the crimes it committed, Binance became the largest cryptocurrency exchange in the world. Now Binance is paying one of the largest corporate penalties in U.S. history.
Binance employees knew and discussed that the company was serving thousands of users in sanctioned countries. And they knew that facilitating transactions between U.S. users and users in sanctioned countries would be in violation of U.S. law.
But they did it anyway. Binance enabled nearly $900 million in transactions between U.S. and Iranian users. And it facilitated millions of dollars in transactions between U.S. users and users in Syria and in the Russian-occupied Ukrainian regions of Crimea, Donetsk, and Luhansk.
Binance’s own compliance personnel also knew that the company’s anti-money laundering procedures were inadequate and would attract criminals to the platform.
In a February 2019 chat, one compliance employee wrote that they needed a banner that said: “is washing drug money too hard these days – come to Binance; we got cake for you.”
By failing to comply with U.S. law, Binance made it easy for criminals to move their stolen funds and illicit proceeds on its exchange.
For example, between August 2017 and April 2022, there were direct transfers of approximately $106 million in bitcoin to Binance.com wallets from Hydra. Hydra was a popular Russian darknet marketplace, frequently utilized by criminals, that facilitated the sale of illegal goods and services.
Binance only stopped processing Hydra transactions in April of 2022, when the Justice Department and our German law enforcement partners seized control of the Hydra marketplace and shut it down.
From February 2018 to May 2019, Binance processed more than $275 million in deposits and $273 million in withdrawals from Bestmixer. Bestmixer was one of the largest cryptocurrency anonymizing services in the world before it was shut down for money laundering.
Binance also did more than just fail to comply with federal law – it pretended to comply.
In June 2019, Binance publicly announced that it would block U.S. users from Binance.com and launch a separate U.S. exchange. That exchange, Binance.US, would register with the Treasury Department and serve the U.S. market. Binance blocked some U.S. users on Binance.com and redirected them to the U.S. exchange.
At the same time, however, Binance continued to allow some of its most important, high-volume U.S. users to remain on the unregistered Binance.com exchange.
At the direction of Zhao and other senior leaders at Binance, employees encouraged their high-volume U.S. users to conceal their U.S. connections, including by creating new accounts that obscured their locations.
As Zhao himself said in a September 2019 chat: “If we blocked US users from day 1, Binance will be not [sic] as big as we are today. We would also not have had any US revenue we had for the last 2 years.” He then added: “better to ask for forgiveness than permission.”
Over a year after Binance publicly announced that it was blocking U.S. users, an internal monthly company report attributed 16% of its total registered user base to the United States. That was more than any other country on the unregulated Binance.com platform.
In the next monthly report, Binance removed the United States label and recategorized U.S. users with the label “UNKWN” – short for “unknown.” In October 2020, users labeled as “UNKWN” represented approximately 17% of Binance’s registered user base.
Binance and Zhao profited significantly from their violations of federal law. That they are facing accountability for their crimes is due to the hard work of the extraordinary public servants at the Department of Justice.
I want to thank the Criminal Division’s Money Laundering and Asset Recovery Section; the National Security Division’s Counterintelligence and Export Control Section; and the United States Attorney’s Office for the Western District of Washington for their excellent work.
I also want to thank Secretary Yellen and her team at the Treasury Department, including IRS Criminal Investigation, as well as CFTC Chairman Behnam and his team for their extraordinary partnership in this matter.
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 message here should be clear: Using new technology to break the law does not make you a disruptor. It makes you a criminal.
This Justice Department has no tolerance for crimes that threaten our economic institutions and undermine public trust in the fairness of those institutions. And we will hold accountable the individuals who commit and profit from them.
End of DOJ.
Zaher Fallahi, International Tax Attorney, CPA, advises clients with their Domestic and International Cryptocurrency & Tax Matters in conformity with the Bank Secrecy Act (BSA) and Anti-Money Laundering Compliance. Tel.: (310) 719-1040, (714) 546-4272 and (877) 687-7558 toll free nationwide. Websites: zflegal.com and zfcpa.com E-mail firstname.lastname@example.org