The largest cryptocurrency exchange in the world, Binance, suffered a severe blow from the U.S. government on Tuesday when its CEO and founder, Changpeng Zhao, entered a guilty plea to a felony relating to his failure to stop money laundering on the site. Binance agreed to pay a settlement of about $4 billion.

Zhao resigned as the CEO of the business, and Binance acknowledged breaking the Bank Secrecy Act as well as possibly breaking sanctions laws by failing to set up procedures for reporting suspicious transactions.

(Photo : by David Ryder/Getty Images)
Zhao resigned as the CEO of the business, and Binance acknowledged breaking the Bank Secrecy Act as well as possibly breaking sanctions laws by failing to set up procedures for reporting suspicious transactions.

According to the terms of the settlement, the U.S. Treasury stated that Binance, a limited liability corporation based in the Cayman Islands, will be subject to "significant compliance undertakings, including to ensure Binance's complete exit from the United States" and five years of surveillance.

Market crashes and scandals have plagued the bitcoin sector.

Legal Consequences and Compliance Challenges

Sam Bankman-Fried, the 31-year-old creator of FTX, the second-largest cryptocurrency exchange before it crashed in November, was Zhao's most well-known adversary. This month, Bankman-Fried was found guilty of fraud for swindling at least $10 billion from investors and consumers.

Meanwhile, Zhao entered a guilty plea to one count of failing to keep up an efficient anti-money-laundering program on Tuesday in a federal court in Seattle.

In a statement, Binance claimed it took "misguided decisions" that led to it becoming the largest cryptocurrency exchange in the world swiftly and that it accepted "responsibility for historical, criminal compliance violations" as part of the settlement.

According to Yellen, Binance did not disclose any suspicious behavior about those transactions, and the business permitted over 1.5 million virtual currency exchanges that were against U.S. sanctions, including those involving al-Qaeda, Hamas' al-Qassam Brigades, and other criminal organizations.

The judge scheduled Zhao's sentence for February 23, but it's probably going to happen later. He might receive a sentence of up to 18 months, according to guidelines.

Zhao voluntarily turned himself in despite the fact that the United Arab Emirates, where he resides, does not have an extradition treaty with the United States, according to one of his lawyers, Mark Bartlett. Zhao has been aware of the inquiry since December 2020.

In the past, Zhao has been accused of misappropriating client cash, hiding the fact that the business was combining billions of dollars' worth of investor assets, and transferring those assets to a third entity that Zhao also owned.

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Binance's Connection to FTX's Bankruptcy

In a complaint filed by regulators over the summer, Binance was charged with operating as an unregistered securities exchange and breaking many securities laws in the United States. That scenario was comparable to the unearthed practices following FTX's bankruptcy.

Binance invested in FTX when Bankman-Fried started the exchange in 2019, and Zhao and Bankman-Fried were formerly amicable rivals in the business. But their relationship deteriorated, to the point where Zhao said in early November 2022 that he was selling all of his bitcoin holdings in FTX. A week later, FTX filed for bankruptcy.

Bankman-Fried attempted to place the blame for the purported bank run at FTX on Binance and Zhao both during this trial and in subsequent public remarks.

Bankman-Fried was convicted guilty of wire fraud and many other crimes by a jury. When he is sentenced in March, he may spend decades behind bars.

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