The former CEO of Binance, a crypto currency exchange company that broke US anti-money laundering laws, has been told he cannot go home to the United Arab Emirates, after a second request was denied the end of December.
Billionaire Changpeng Zhao is awaiting sentencing in February after pleading guilty to one count of failing to maintain an effective anti-money laundering programme.
On 7 Dec., US District Judge Richard Jones reversed an earlier decision that would have allowed Zhao to visit his family in the UAE.
“The defendant has enormous wealth and property abroad, and no ties to the United States,” he said in his judgment.
“His family resides in the UAE and it appears that he has favored status in the UAE.
“Under these circumstances the court finds that the defendant has not established by clear and convincing evidence that he is not likely to flee if he returns to the UAE.”
A second request to leave was denied in a sealed ruling, filed on 29 Dec., according to Bloomberg.
Zhao’s charge stems from the company’s “wilful failures” which allowed terrorists, cybercriminals, child abusers and other criminals to trade on the crypto platform.
“Binance turned a blind eye to its legal obligations in the pursuit of profit,” US Treasury Secretary Janet Yellen said in a press release earlier announcing the record penalties imposed on the company.
The firm also matched trades between US users and those in sanctioned jurisdictions such as Iran, North Korea, Syria and the Crimea region of Ukraine.
The global company, which launched its main platform in 2017, was fined a record US$4.3 billion for its violations last November.
Binance Holdings Limited, registered in the Cayman Islands, is named in legal documents as the entity that does business as Binance and Binance.com.
However, according to the Cayman Islands Monetary Authority, Binance Holdings Limited is not allowed to operate a crypto exchange from the territory.
The Compass asked both CIMA and the Ministry of Financial Services for comment, but none was sent by press time.
Investigation
The US Internal Revenue Service Criminal Investigation led the probe into Binance and its founder Zhao that served as the basis for criminal charges and civil penalties.
Evidence gathered proved the company and its founder did not have an effective anti-money laundering programme in place.
Also, the company did not register as a money transmitter as required by federal law, and it wilfully violated US sanctions tied to the International Emergency Economic Powers Act.
The firm settled on 21 Nov. last year with the US Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC).
The settlement with FinCEN included a civil money penalty of $3.4 billion and a five-year monitorship. It also requires Binance to completely exit from the United States.
The agreement with OFAC included a $968 million penalty and requires Binance to abide by a series of robust sanctions compliance obligations.
Both fines were the largest ever awarded by each of the two US government agencies.
The settlements are part of a global agreement, alongside Binance’s resolution of related matters with the Department of Justice and the Commodity Futures Trading Commission.
Yellen said the historic penalties and monitorship to ensure compliance with US law and regulations “mark a milestone for the virtual currency industry”.
“Any institution, wherever located, that wants to reap the benefits of the US financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime, or face the consequences.”
Cayman’s link
Several of the legal documents name Binance Holdings Limited, which is registered in the Cayman Islands, as being being interchangeable with Binance.
Meanwhile, FinCEN named three legal entities – Binance Holdings Limited, Binance (Services) Holdings Limited, and Binance Holdings (IE) Limited.
Each is “affiliated through common ownership and control by the same individual”, the FinCEN document said.
They are also “involved – such as through ownership of intellectual property, provision of technology services, or employment of personnel – in the coordinated operation of the Binance.com convertible virtual currency exchange”.
Binance.com serves as the public face of these companies and the vehicle through which they provide financial services to customers, the document continues.
Other legal entities have also been involved in the operation of the Binance.com crypto exchange, it says.
However, for purposes of resolving its investigation, FinCEN agreed to enter into a consent order with just the three legal entities.
The CEO of the Binance.com business is the same individual who beneficially owns these legal entities, the document says.
The conduct in the document relates to the operation of the Binance.com crypto exchange, and the term Binance is generally used to refer to this business, it says.
In certain instances, the order uses Binance’s “doing business as” name of Binance.com, to differentiate the Binance.com crypto exchange from the Binance.us crypto exchange.
FinCEN enforcement
FinCEN’s historic $3.4 billion settlement, detailed in the legal consent order, is the largest penalty in US Treasury and FinCEN history.
Binance admitted that it operated as an unregistered money services business while obscuring its ties to the US and maintaining its commercially important US customers.
It also admitted it wilfully failed to establish, implement, and maintain an effective anti-money laundering programme, the Treasury said in a press release.
This meant that Binance allowed a range of illicit actors to transact freely on the platform, damaging the integrity of the financial system.
The investigation found the firm did not mitigate risks of anonymity-enhanced crypto, allowing users to obscure information on the origin and destination of transactions.
It also revealed that Binance’s former chief compliance officer told personnel that the CEO’s policy was not to report suspicious activity.
The company failed to report well over 100,000 suspicious transactions that it processed as a result of its deficient controls.
Among them were transactions linked with terrorist groups including Al Qaeda, the Islamic State of Iraq and Syria (ISIS), Hamas’ Al-Qassam Brigades, and Palestinian Islamic Jihad, Treasury’s press release noted.
Despite being one of the largest receivers of ransomware proceeds, and transacting in millions of dollars of ransomware proceeds, Binance failed to report these transactions.
The crypto company also never reported transactions with websites devoted to selling child sexual abuse materials.
Other unreported transactions included large-scale hacks, account takeovers, and darknet markets dealing in illegal narcotics, and counterfeit and fraud-related goods and services.
OFAC enforcement
Details of the OFAC action, which is directly against the Cayman-registered Binance Holdings, are detailed in an enforcement release.
Between 2017 and 2022, Binance executed more than 1.67 million virtual currency trades between US residents and sanctioned jurisdictions or blocked people.
As early as mid-2018, Binance knew or should have known that enabling such activity would result in violations of sanctions, according to Treasury’s press release.
“Nevertheless, Binance deliberately undermined and ineffectually implemented its own sanctions compliance controls.”
One way the company did this was through its suggestion that users employ virtual private networks that could circumvent Binance’s own geofencing controls.
In doing so, the US Department of the Treasury said the company sought to retain its US users and the large volume of trading liquidity that they provided, while also maintaining customers from sanctioned jurisdictions.
“To maintain this activity, Binance executives, including its CEO, issued guidance to ‘appear’ compliant, while knowingly allowing the apparently violative activity to continue,” the release notes.
Resignation
Following the settlements on 21 Nov., co-founder Changpeng Zhao announced his resignation as CEO in a post on X:
“I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself,” he wrote.
Zhao said: “I am proud to point out that in our resolutions with the US agencies they do not allege that Binance misappropriated any user funds, and do not allege that Binance engaged in any market manipulation.”
He named Richard Teng, former global head of regional markets, as the new CEO.
“He will ensure Binance delivers on our next phase of security, transparency, compliance, and growth,” Zhao wrote.
In his response, Teng said his focus will be on reassuring users that they can remain confident in the financial strength, security and safety of the company.
He added that he will collaborate with regulators to uphold high standards globally that foster innovation while providing important consumer protections.
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