The Eight Sins of Binance

On November 21, U.S. Attorney General Merrick B. Garland revealed the specific details of Binance and Changpeng Zhao's illegal activities in a public statement, stating that they acted "intentionally unlawful" and "pretended to be law-abiding."

In August 2017, Changpeng Zhao founded Binance, and from the beginning, Zhao and other Binance executives attracted and built a significant U.S. customer base without implementing controls required by U.S. law. After nearly two years of Binance's establishment, Zhao informed senior management that the U.S. market represented 20% to 30% of Binance's potential revenue.

Binance provided services to U.S. customers but failed to comply with U.S. laws, including not registering with the U.S. Department of the Treasury as a money services business and not implementing an effective anti-money laundering program. Instead, it facilitated unregulated cryptocurrency transactions worth billions of dollars, including transactions involving U.S. users and unsanctioned users.

Binance facilitated nearly $900 million in transactions between U.S. and Iranian users, also promoting transactions worth millions of dollars between U.S. users and users in Ukraine regions such as Crimea, Donetsk, and Luhansk, occupied by Russia.

Some Binance employees were aware that the company provided services to users in sanctioned countries. In a chat in February 2019, a compliance business employee wrote that they needed a banner that reads, "Is it too hard to launder drug money these days? Come to Binance, we got cake for you."

Between August 2017 and April 2022, the Russian dark web market Hydra transferred approximately $106 million worth of Bitcoin directly to Binance.com wallets. Binance only ceased processing transactions from Hydra after the U.S. Department of Justice and German law enforcement partners controlled and shut down Hydra in April 2022.

From February 2018 to May 2019, Binance processed deposits exceeding $275 million and withdrawals of $273 million for Bestmixer. Bestmixer was once one of the world's largest cryptocurrency anonymization service providers, later closed due to money laundering.

As an instance of "pretending" to comply, Binance established the separate U.S. exchange Binance.US in June 2019, registered with the Department of the Treasury. The intent of the exchange was purportedly to serve the U.S. market. It had, at that time, made a public announcement stating that it would prevent U.S. users from accessing Binance.com. However, it would found that Binance had retained some of the most critical, high-volume U.S. users, letting them stay on the unregulated Binance.com exchange. Under the guidance of Zhao and other Binance executives, employees encouraged such high-volume U.S. users to conceal their connection to the U.S., creating new accounts to hide their location.

In the year and a half after Binance publicly announced blocking U.S. users, an internal monthly report showed that 16% of Binance's total registered users were from the U.S., the highest for any country on the Binance.com platform. Almost as if aware that this would come back to haunt it, Binance removed the U.S. label in the next monthly report, categorising such U.S. users as "UNKWN," meaning "unknown." In October 2020, users marked as "UNKWN" accounted for approximately 17% of Binance's registered user base.

From U.S. Attorney General Merrick B. Garland's statement, it is evident that multiple regulatory departments of the U.S. Department of Justice and Treasury participated in the investigation against Binance and Changpeng Zhao, including the Criminal Division's Money Laundering and Asset Recovery Section, the National Security Division's Counterintelligence and Export Control Section, and the U.S. Attorney's Office for the Western District of Washington, as well as the Treasury Secretary Janet Yellen, the Internal Revenue Service's Criminal Investigation Division, and the Commodity Futures Trading Commission.

But CZ Has Lost Much More...

November 21 - The U.S. Department of Justice announces a settlement with Binance, Changpeng Zhao admits his guilt, and steps down as CEO.

November 22: Changpeng Zhao arrives at a Seattle court.

Changpeng Zhao tweets about resigning as Binance CEO, stating something to the effect of, "I made a mistake, and I must take responsibility." Richard Teng, former Global Head of Markets at Binance, will take over as CEO.

Bloomberg reports that Changpeng Zhao faces a maximum of 10 years in prison, but according to the plea agreement, the expected sentence will not exceed 18 months.

November 23: Reuters reports that U.S. prosecutors are pressuring a federal judge to keep Binance founder Changpeng Zhao on U.S. soil until a sentencing hearing on February 23, 2024.

November 24: Changpeng Zhao's legal team argues that he should be allowed to return to the UAE before sentencing, planning to advocate for "no prison" or a few months of imprisonment plus a few months of home detention.

November 26: The U.S. Department of Justice urges the court to require Changpeng Zhao to stay in the U.S. during the guilty plea and sentencing. They cited the risk of him fleeing and pointed out that as a UAE citizen, there is no reason to believe the UAE will extradite him to the U.S.

November 28: Reuters reports that a U.S. federal judge states that former Binance CEO Changpeng Zhao must temporarily stay in the U.S. until the Seattle court considers whether he should continue to stay for the sentencing hearing in February or allow him to return to the UAE.

November 29: Binance.US tweets that Changpeng Zhao has decided to step down as Chairman of the Board and transfer his voting rights through a proxy arrangement. He will no longer participate in governance. Binance.US states it operates independently and continues to operate fully.

See: Navigating the Storm: Where Exactly is CZ Leading Binance? (Part 1)

See: Navigating the Storm: Where Exactly is CZ Leading Binance? (Part 3)