WSJ Binance Founder Changpeng Zhao Resigns and Admits Guilt

WSJ Binance Founder Changpeng Zhao Steps Down, Takes Responsibility for Wrongdoings

Author: Dave Michaels, LianGuaitricia Kowsmann, Vivian Salama, Caitlin Ostroff, Wall Street Journal; Compiled by: Song Xue, LianGuai

Court documents show that the CEO of Binance, the world’s largest cryptocurrency exchange, has resigned and admitted to violating US anti-money laundering criminal requirements, potentially retaining the ability to continue operating the company.

According to court records, Zhao Changpeng appeared in a federal court in Seattle on Tuesday and entered a plea. Prosecutors accused Zhao of providing facilities for transactions with sanctioned organizations through Binance. The prosecutors stated that Binance encouraged US users to hide their locations in order for the company to avoid complying with US anti-money laundering laws.

Binance pleaded guilty and agreed to pay a total of $4.3 billion in fines, including the amount for settling civil charges brought by regulatory agencies.

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According to court records, Zhao Changpeng agreed to pay a criminal fine of $50 million, although this amount may be reduced based on the separate civil fine he agrees to pay. Zhao Changpeng’s plea agreement has not been made public.

“I made a mistake, and I have to take responsibility,” Zhao Changpeng wrote on X (formerly Twitter). “This is the best outcome for our community, Binance, and myself.”

The agreement ends a long-running investigation into Binance. Zhao Changpeng founded the company in 2017 and developed it into a leading center for the global cryptocurrency market. Despite initially gaining market share after one of its main overseas competitors, FTX, collapsed last year, the criminal investigation cast a shadow over the company.

Binance acknowledged in a statement that it lacked necessary compliance controls in the past, but this settlement signals its acceptance of responsibility.

Executives have recently fled Binance due to the exchange’s difficulty in accepting US investigations, and the exchange has also laid off a large number of employees this year.

Prosecutors said that Binance knew it had millions of US users as early as 2018 but did not establish a plan to detect money laundering or violations of sanctions. Prosecutors said that Binance processed transactions worth $899 million between US individuals and users believed to be located in Iran from January 2018 to May 2022.

According to prosecutors, Zhao Changpeng knew he had many US customers, and in September 2019, he wrote that despite the law seeming to prohibit it, he still accumulated so many US users, stating, “Asking for forgiveness is better than permission.”

“Using new technology to break the law doesn’t make you a disrupter. It makes you a criminal,” said Attorney General Merrick Garland.

This settlement allows Zhao Changpeng to retain a majority stake in Binance, although he will no longer be able to hold executive positions in the company. Justice Department officials stated that he is not eligible to return to the company.

According to the Federal Sentencing Guidelines, Zhao Changpeng faces a maximum of 18 months in prison. He will be sentenced later.

The outcome is similar to the case previously brought against BitMEX executives by the prosecutor. BitMEX is a cryptocurrency derivatives trading platform based in Seychelles. Former CEO Arthur Hayes admitted to violating anti-money laundering laws and was later sentenced to two years of probation, avoiding a possible 6 to 12 months of imprisonment.

Sources say that for several months, the Department of Justice and Binance have been working towards reaching an agreement. Zhao Changpeng recently hired a new chief lawyer, William A. Burck from Quinn Emanuel Urquhart & Sullivan law firm, to represent him in the Department of Justice. Gibson Dunn & Crutcher represents Binance.

Sources say that the settlement announced on Tuesday does not include a settlement with the U.S. Securities and Exchange Commission, which filed a lawsuit against Binance and Zhao Changpeng in June, accusing them of violating U.S. investor protection laws. Major cryptocurrency exchanges such as Binance have decided to file lawsuits against the U.S. Securities and Exchange Commission, believing they can prove that cryptocurrencies do not fall under the types of investments regulated by the commission.

Zhao Changpeng leaving the Seattle courthouse. He agreed to a settlement that may allow Binance to continue operating. Photo: M. SCOTT BRAUER for The Wall Street Journal

According to previous reports by The Wall Street Journal, the Department of Justice’s investigation focused on Binance’s anti-money laundering plan and whether the plan allowed individuals from sanctioned countries like Iran and Russia to engage in transactions with Americans on the exchange.

Sources say that another agreement resolves civil lawsuits brought earlier this year by the Commodity Futures Trading Commission against Binance and Zhao Changpeng. The Commodity Futures Trading Commission is one of the U.S. regulatory agencies attempting to regulate the unregulated global markets. The $4.3 billion that Binance must pay includes an amount for settling CFTC claims and claims made by Treasury Department agencies.

The U.S. Commodity Futures Trading Commission alleges that Binance did not have a program in place to prevent and investigate terrorist financing and money laundering activities over the years. It also stated that Binance offered U.S. individuals the opportunity to engage in derivatives such as futures or swaps, which can only be traded in the U.S. on regulated platforms. The U.S. Commodity Futures Trading Commission stated that Binance has never registered with U.S. regulatory agencies, which prevented U.S. traders from accessing its high-risk leverage products.

United States Treasury Secretary Janet Yellen stated: “Any institution, regardless of where it is located, that wants to benefit from the US financial system must abide by the rules that protect us all from terrorist, foreign adversaries, and criminal harm, or else face consequences.”

Binance was founded in Shanghai, but its CEO, Changpeng Zhao, resides in the United Arab Emirates and has reduced travel this year. Although the two countries signed a treaty last year to enhance the sharing of law enforcement evidence, they have not signed an extradition treaty with each other.

Despite countries like China and the United States cracking down on this unregulated industry, the UAE still welcomes cryptocurrencies. According to insiders, Changpeng Zhao’s identity has been a sticking point in negotiations between the government and Binance for months.

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