Binance Pleads Guilty and Pays $4.3B Fine, Including Nearly $1B to Settle OFAC Sanctions Violations
Leading cryptocurrency exchange Binance Holdings, Ltd. (“Binance”) has agreed to pay a $4.3 billion fine as part of a proposed plea deal with federal law enforcement to resolve allegations that it engaged in money laundering, bank fraud, and sanctions violations. As part of the agreement, the company’s CEO, Changpeng Zhao, will plead guilty to violations of the Bank Secrecy Act, resign from the company, and pay a $50 million fine. The company has also agreed to appoint an independent compliance monitor for three years to ensure compliance with the plea agreement.
The deal struck between the government and Binance represents a resolution of investigations conducted by numerous federal agencies and is an indication of the interconnectedness of federal law enforcement activity when it comes both to the cryptocurrency industry and potential bank fraud, money laundering, and sanctions evasion issues more broadly. For example, both the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission have increased enforcement actions against cryptocurrency and other digital asset companies. The Department of Justice has likewise been active in this area, including most notably in its conviction of Sam Bankman-Fried, the former CEO of FTX, on numerous counts of fraud.
The Department of Treasury likewise plays a central role in anti-money laundering and sanctions enforcement. That work includes the Department of Treasury’s Office of Foreign Assets Control (“OFAC”), which is responsible for administering and enforcing economic trade sanctions in accordance with U.S. foreign policy. It does this by both prohibiting economic transactions between U.S. citizens and targeted nations, entities, and individuals, as well as by freezing specific assets subject to agency sanctions. OFAC announced that Binance agreed to pay nearly $1B to settle its potential civil liability for more than 1.6 million apparent violations of various sanctions programs.
Binance is one of the world’s largest virtual cryptocurrency exchanges and is responsible for an estimated 60% of centralized virtual-currency spot trading. Binance’s exchange allowed users to trade virtual currency like bitcoin through a range of different financial arrangements. According to the OFAC Settlement Agreement, Binance was aware that many of the exchanges occurring on its platform involved transactions that violated various U.S. sanctions including those related to Iran, North Korea, and Syria. Senior Binance officials were aware that the continued presence of U.S. users on Binance’s exchange would subject the company to serious criminal and civil regulatory risk, but Binance nonetheless continued to retain U.S. users and had “inadequate controls in place to prevent those users from trading with users in sanctioned countries and blocked persons.” In fact, Binance encouraged users to employ virtual private networks that could circumvent Binance’s own geofencing controls.
In calculating the appropriate penalty to impose against Binance, OFAC followed its Economic Sanctions Enforcement Guidelines. A key factor in its analysis was a finding that Binance’s apparent violations were “not voluntarily self-disclosed” and were “egregious.” In particular, OFAC cited numerous instances in which Binance management was aware of the fact that the exchange might be facilitating sanctions violations but nonetheless failed to take necessary corrective action, including failing to establish reliable internal compliance safeguards. Binance’s settlement is the largest in OFAC history, and Binance remains open to potential further fines and penalties if it breaches the compliance commitments it made in its various settlements.
In addition to the settlement with OFAC, Binance entered into a Consent Order with the CFTC to resolve allegations for violations of the Commodity Exchange Act as well as a Consent Order with Treasury’s Financial Crimes Enforcement Network (“FinCEN”) for violations of the Bank Secrecy Act. As part of the FinCEN Consent Order, Binance has agreed to a large civil fine and will appoint an independent compliance monitor for five years. (the monitor may, but need not be, the same monitor appointed as part of the company’s plea deal with DOJ). The monitor will be charged with reviewing and assessing Binance’s compliance with the Bank Secrecy Act and U.S. economic sanctions; assessing and monitoring the effectiveness of Binance’s anti-money laundering and sanctions compliance programs; and assessing and monitoring Binance’s compliance with the relevant agreements it has entered into with government entities.
Read more about Getnick Law’s leading role in developing the use of independent monitorships here.