CHICAGO (CN) — A month after pleading guilty to federal money laundering charges in Seattle, Changpeng Zhao, the founder and ex-CEO of the world's largest cryptocurrency exchange, faced another court defeat Thursday morning in the Windy City.
In a consent order filed in federal court that morning, he — and Binance, founded in 2017 — agreed to never again engage in commodity trading practices which violate U.S. regulations. The court filed a similar order against Binance's former chief compliance officer, Samuel Lim. The orders also mandate steep fines for Binance, Zhao and Lim: Binance must pay $1.35 billion, Zhao, $150 million and Lim, $1.5 million.
As of Tuesday afternoon, Dec. 19, Binance had seen an estimated $15 billion in daily trade volume over the past 24 hours.
A statement released by the U.S. Commodity Futures Trading Commission on Monday, Dec. 18, clarified that the fine against Binance is twofold. In addition to the $1.35 billion penalty Binance must pay the CFTC directly, it must also disgorge a matching $1.35 billion in "ill-gotten transaction fees."
"The order... obligates Zhao and Binance to make certifications as to the existence, application, and efficacy of Binance’s improved compliance controls, and permanently enjoins them from further violations as charged," the CFTC said in its statement.
The U.S. Commodity Futures Trading Commission first filed suit against Binance, Zhao and Lim in Chicago federal court this past March, accusing them of multiple regulatory violations. The Securities & Exchange Commission filed a similar civil suit against Binance and Zhao in Washington in June, and the Department of Justice initiated a criminal case against only Zhao in Seattle in mid-November. He pleaded guilty to the single money laundering charge in that case a week later, and stepped down as Binance CEO the same day.
"I made mistakes, and I must take responsibility," Zhao said in a Nov. 21 statement. "This is best for our community, for Binance, and for myself. Binance is no longer a baby. It is time for me to let it walk and run."
In all three cases, the government says Binance failed, from 2019 onwards, to implement proper anti-money laundering controls on trades. The Chicago complaint even accused Zhao and Lim of instructing users on how to flout U.S. exchange law.
"Zhao, Lim, and other members of Binance’s senior management have failed to properly supervise Binance’s activities and, indeed, have actively facilitated violations of U.S. law, including by assisting and instructing customers located in the United States to evade the compliance controls Binance purported to implement to prevent and detect violations of U.S. law," the Commodity Futures Trading Commission stated in its March complaint.
The accusations reflect how Binance ran afoul of U.S. geopolitical interests. The Chicago complaint makes reference to Russian customers using the platform "for crime," in Lim's own words, while the criminal charge from Seattle accuses Binance of taking customers from countries the U.S. has sanctioned, such as Cuba, Iran and North Korea. The Chicago complaint, and the new consent orders from Thursday, also say Binance's lack of money laundering controls abetted "terrorists." However, none of the documents offer any definition of "terrorist" in context, or specify which supposed terrorist groups or individuals used the platform.
"Defendants, doing business as Binance, and through their officers, employees, and agents failed to implement a customer identification program, [know-your-customer] policies and procedures, an [anti-money-laundering] program, failed to retain required customer information, and failed to implement procedures to determine whether a customer appears on lists of known or suspected terrorists or terrorist organizations such as those issued by the U.S. Deportment of the Treasury's Office of Foreign Assets Control," the government said in the consent agreements.
Zhao and Lim agreed not to publicly dispute any part of the the consent order's findings or stipulations, and their lawyers could not be reached for comment. The Commodity Futures Trading Commission similarly did not respond to a request for comment, but in its Monday statement, it clarified that Binance agreed to impose much stricter security controls on its platform.
"Binance and Zhao... certified that any customer who seeks to onboard, whether through a primary or “sub account,” must complete all KYC onboarding procedures," the CFTC said. "The order requires Binance and Zhao to make additional certifications, including that Binance will no longer allow existing sub-accounts, including those opened by prime brokers, to bypass the platform’s compliance controls."
Beau Barnes, one of the lead attorneys prosecuting Zhao's criminal case in Seattle, declined to comment on what the consent orders could mean for the Binance founder's sentencing.
Zhao himself, once a prolific Twitter user, has not appeared on the platform since Dec. 8, when he thanked a fan for their support. When stepping down as Binance CEO, he announced that he would be succeeded by Richard Teng, formerly the company's head of regional markets.
Binance invested $500 million in Elon Musk's efforts to buy Twitter, which he has since renamed X, in 2022.
In November, Zhao said he was content being a "one-shot (lucky) entrepreneur" and that he was exploring "being a minority token/shareholder" in startups related to AI, blockchain and biotech.
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