Binance, Wall Street, and Wall Street: A Justice Dept. Indictment against the Cosmic Cryptocurrency Exchange FTX
According to the indictment, Zhao prioritised the growth and profits over compliance with US law. The indictment states that he told staff that it was better to ask for forgiveness than permission, despite acknowledging the company operated in an “grey zone”.
Two CEOs of the world’s largest cryptocurrencies exchangeshave been successfully prosecuted by the Justice Department in the past month. “The message here should be clear using new technology to break the law does not make you a disrupter — it makes you a criminal.”
In a statement, Binance admitted that it did not have proper compliance controls, but said it always sought to protect users.
The deal ends investigations by the DOJ and the commodities regulator into Binance — though the company could still face hefty penalties from the Securities and Exchange Commission.
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.
Last year, Binance saw its market share grow after FTX collapsed. Users fled to other exchanges in the past few months as the SEC and other regulators scrutinized their business.
Less than a month ago, federal prosecutors convinced a jury to find FTX’s 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. “And if they do not, 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.” Damages to innocent parties will be considered, and may include shareholders, employees, or customers of the company. 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 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.
Garland announced Tuesday that the company had been fined $4.3 billion and that the company had agreed to pay the fine as a part of their settlement with the DOJ. Zhao has also stepped down from his role running the company.
Prosecutors claim the company turned a blind eye, sometimes willfully and knowingly, to the trading of funds from countries that were not included in the UN sanctions, including Iran, Cuba, Syria, and the Russian-occupied areas of Ukraine.