• Sun. Apr 21st, 2024

Court Orders Binance to Pay $2.7 Billion in Fines

Walter Swift

ByWalter Swift

Dec 20, 2023

A district court in the Northern District of Illinois recently approved a settlement and issued an order affecting Binance, the prominent cryptocurrency exchange, and Changpeng Zhao, its former CEO.

This significant step by the District Court marks the conclusion of an enforcement action initiated by the Commodity Futures Trading Commission (CFTC).  

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The comprehensive consent order includes provisions for a permanent injunction, a civil monetary penalty, and equitable relief against both Binance and Zhao, as detailed in a Monday, December 18th press release issued by the CFTC. The settlement between the parties follows a formally announced November 21st notice, and now it has the court’s official backing. 

The agreement outlines a substantial $150 million civil monetary penalty directed at Zhao and further mandates a hefty $2.7 billion payment from Binance to the CFTC. Remarkably, according to the information in the release, half of this sizeable payment is designated as the refund of purportedly “ill-gotten” transaction fees. 

The other half is a penalty.

These developments stem from the court’s conclusive determination that both Zhao and Binance violated provisions outlined in the Commodity Exchange Act (CEA) and specific regulations set forth by the CFTC, as detailed within the report.

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 A crucial element included in the order pertains to the future conduct of Zhao and Binance. The order requires both entities to provide certifications affirming the presence, application, and effectiveness of Binance’s newly strengthened compliance controls.

Additionally, the court’s directive imposes a permanent restraint on them from engaging in further violations of the charges that were leveled against them, as stated explicitly by the CFTC in its release.

In a November 21 public blog post, Binance disclosed it had successfully reached settlements with various regulatory bodies, including the CFTC, the Department of Justice, the Office of Foreign Assets Control, and the Financial Crimes Enforcement Network.  

These resolutions resulted from investigations relating to several issues, including registration, compliance, and adherence to sanctions protocols. Furthermore, the same post revealed that Changpeng Zhao, the pioneering founder and CEO of Binance, decided to step down from his role and acknowledged guilt in violating criminal anti-money laundering requirements as part of the settlement terms.

Acknowledging the challenges faced during the exchange’s rapid expansion amidst a burgeoning industry within its early stages of regulation, Binance expressed introspection and accountability for the decisions made during that time. Also, the company conveyed its commitment to taking responsibility for past missteps and ensuring a forward-looking, compliant operation moving ahead.

The CFTC’s Case Against Binance

The order accuses Binance, led by Changpeng Zhao, of actively seeking customers in the United States, including trading firms. Furthermore, the CFTC alleged that these customers engaged in digital asset transactions on the Binance platform, going against Binance’s rules. 

Also, the CFTC accused Binance of allowing two prime brokers to create accounts without following proper customer verification procedures (KYC), which let American customers trade directly on the platform. Despite knowledge of the regulations, Zhao and Binance degraded them and hid the presence of US-based customers.

Additionally, top Binance employees encouraged the customers to evade compliance measures. As part of the order, Binance and Zhao confirmed that, after the CFTC’s complaint, they ceased dealings with the identified trading firms as they didn’t meet Binance’s new onboarding standards. 

They also affirmed that new customers complete the required KYC procedures. The order demands further assurances, such as ensuring Binance won’t allow existing “sub-accounts” created by prime brokers to bypass compliance checks.

After assessing these accounts, Binance will discontinue those that fail to meet the compliance requirements.  Moreover, Binance must ensure that Binance establishes a new governance structure, including an independent board and committees focused on compliance and auditing.

 In a separate ruling by Judge Manish S. Shah, Binance’s former Chief Compliance Officer, Samuel Lim, was ordered to pay a $1.5 million penalty for aiding Binance’s violations and engaging in activities outside the US.

Changpeng Zhao is Not In The Clear

The titan of the crypto sphere has faced a significant shift in fortunes, with potential implications for his freedom. Changpeng Zhao made headlines when he stepped down and admitted guilt of violating anti-money laundering laws.

The move came as part of a monumental $4.3 billion settlement, marking the culmination of a protracted investigation into the activities of the world’s largest cryptocurrency exchange, as detailed by prosecutors. This wide-ranging agreement forms part of a substantial settlement involving Binance and several government bodies and resolves several criminal allegations. 

These include charges related to operating a money transmission business without the requisite licensing, participating in a conspiracy, and contravening sanctions regulations. Also, this settlement has introduced a cloud of uncertainty over Zhao’s future within the cryptocurrency landscape and beyond.

In a candid and emotional post on “X” last month, Zhao, often recognized by his “CZ” moniker, confirmed his decision to step down from the CEO role at Binance. While acknowledging the emotional challenge of relinquishing his position, he emphasized the necessity of this step, stating, “I made mistakes, and I must take responsibility.”

Zhao will pay $150 million in fines. The order also prohibits him from any involvement or association with Binance moving forward.

Legal experts, referencing sentencing guidelines, have outlined the potential consequences facing Zhao, with anticipated prison sentencing guidelines ranging from 10 to 18 months. Prosecutors are reportedly advocating for an 18-month sentence.

In a recent court ruling on December 8, a judge mandated that Zhao remain within the United States until his scheduled sentencing set for February 23. This decision came despite arguments presented by his legal team asserting that Zhao does not pose a flight risk.

 Zhao launched Binance in Shanghai in 2017, envisioning a meteoric rise to success. His ambition and unwavering belief were evident when he expressed his aspirations to dominate the entire market in discussions with the company’s staff during that year.

Despite the challenges encountered along the way, the 46-year-old CEO remained steadfast in his vision, playing a pivotal role in establishing Binance as one of the largest and most influential cryptocurrency exchanges on a global scale.

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Walter Swift

Walter Swift

Walter Swift is an adept crypto writer, known for his deep insights into the decentralized world. His pieces artfully break down complex blockchain topics, making them accessible to a broad audience. With a passion for emerging technologies, Walter's articles are a beacon for crypto enthusiasts and novices alike.

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