© Reuters.
According to a Bloomberg report, the US Department of Justice is seeking more than $4 billion from cryptocurrency exchange Binance Holdings Ltd. in a settlement of a criminal case involving alleged laundering of ransomware funds, bank fraud and sanctions violations. Binance founder Changpeng Zhao, better known as “CZ”, could be charged in the investigation. The development comes as the cryptocurrency sector faces increased scrutiny following high-profile incidents of fraud and regulatory evasion.
The Justice Department’s investigations center on allegations that Binance evaded sanctions against Iran and Russia and maintained financial ties to Hamas. These investigations follow the conviction of the founder of FTX for fraud, which casts a shadow over the cryptocurrency sector. The legal challenges for Binance are not limited to the DOJ; The Securities and Exchange Commission (SEC) also filed a lawsuit accusing the exchange and Zhao of mishandling customer funds and committing securities law violations in June 2023. Earlier in year, in March 2023, the Commodity Futures Trading Commission (CFTC) accused Binance of continued violations of derivatives regulations.
In response to these legal pressures, it is increasingly likely that Binance will have to change direction. The company’s US arm has already suffered significant staff reductions after losing key banking support, leading to a suspension of USD deposits and withdrawals due to the breakdown in banking relationships.
The Justice Department is considering a deferred prosecution agreement as a potential solution, which would require Binance to admit wrongdoing and pay substantial fines while undergoing compliance monitoring. This approach aims to allow the exchange to continue operating without disrupting the market. A decision on this could be made by the end of November.
Additionally, a regulation could impose penalties and stricter know-your-customer (KYC) protocols on Binance to deter cybercriminals from using the platform for illegal fund transfers. This information comes from a three-year investigation by the IRS and CFTC into Binance’s anti-money laundering practices, which concluded today.
Changpeng Zhao notably worked for Bloomberg from 2002 to 2005 before founding Binance, which became one of the largest cryptocurrency exchanges in the world in terms of trading volume. As the situation unfolds, all eyes will be on how Binance navigates these complex legal challenges and how this will impact its future business. Although she faces U.S. criminal charges, CZ is based in the United Arab Emirates, where there is no extradition treaty with the United States.
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