Prosecutors Argue Binance’s Former CEO CZ Poses Flight Risk, Seek US Retention
TL; DR
US prosecutors believe that Changpeng Zhao may not return to the United States for sentencing once he leaves the country.
Binance has appointed Richard Tenge as its new CEO.
Zhao will be sentenced in February 2024.
Introduction
The US Federal courts are handling two high profile crypto cases, one dealing with money laundering violations and the other with misappropriation of customer funds. Both cases involve top crypto exchanges, Binance exchange and FTX, which collapsed in 2022. Two founders and former CEOs are under trial, Sam Bankman-Fried of FTX and Changpeng Zhao of Binance.
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In this article we discuss Changpeng Zhao’s trial and plea of guilty. We will also focus on Binance’s future after the resignation of Zhao. Finally, we shall look at how Binance failed to abide by the United States Bank Secrecy Act.
US Prosecutors Urge Restrictions on CZ’s Exit
The United States prosecutors are urging the federal court to restrain Changpeng Zhao (CZ), the founder of Binance, from leaving the country due to his flight risk. Basically, they are calling for Zhao to stay in the United States until February 2024 when he will get his sentence on charges of money laundering violations.
Recently, Zhao pleaded guilty to the charges of money laundering violations, the Commodity Futures Trading Commission leveled against him. The US regulatory agency alleged that Zhao and Binance, the largest cryptocurrency exchange in the world, failed to implement the required know-your-customer and anti-money laundering programs.
The Commodity Futures Trading Commission also charged Binance and Zhao with conspiracy to conduct an unlicensed money-transmitting business and US sanctions violations. Notably, Binance admitted that it failed to prevent and report suspicious transactions by various US sanctioned groups and countries, including ae-Qaeda, Islamic State and Hamas’ al-Qassam Brigades.
Read also: US Department of Justice Responds to CZ Incident
Binance also carried business with Russia and Iran which are on the US sanction list. Crypto investors Cuba, Syria and occupied territories of Ukraine carried various transactions on Binance which is against the United States legal standing.
As part of his guilty plea Changpeng Zhao agreed to pay a $50 million penalty and resign from his position as the CEO of Binance. Like Zhao, Binance in the US admitted that it committed money laundering violations.
Posting on its blog, Binance said, “Today we are pleased to inform you that we’ve reached resolutions with the U.S. Department of Justice, Commodity Futures Trading Commission, the Office of Foreign Assets Control, and the Financial Crimes Enforcement Network related to their investigations into historical registration, compliance, and sanctions issues.”
It added, “These resolutions acknowledge our company’s responsibility for historical, criminal compliance violations, and allow our company to turn the page on a challenging yet transformative chapter of learning and growth.”
Also, posting on his X profile, Zhao accepted his mistakes and announced the immediate way forward. He wrote, “Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.”
Zhao is a Flight Risk: Prosecutors
As hinted above, the major reason the US prosecutors have urged the Federal court to restrain Zhao from leaving the country is flight risk. The prosecutors have argued that the United Arab Emirates, Zhao’s country of residency, has no close ties with the United States. As a result, Zhao may not return if he leaves the country. This does not mean that Zhao should be jailed before the judge passes his sentence.
Based on the current terms, Zhao has the right to leave the United States after he deposited $15 million in a trust account and signed a personal recognizance bond valued at $175 million.
Nevertheless, the prosecutors believe that Zhao may not honor the agreement once he leaves the country. This is because his wealth is outside the United States. To make matters worse, there is no current extradition agreement between the US and UAE.
On the other hand, Zhao’s attorneys had their valid arguments for the United States to allow him to leave the country and return on the stated date. They have argued that Zhao’s family is in the United Arab Emirates and it is difficult for them to relocate to the United States within a short time.
They also argued that since Zhao voluntarily came to the United States he does not pose any flight risk. Instead, he will return to the country by 10 February. It is important to note that the former CEO of Binance may face up to 18 months in jail for the offenses. Nonetheless, the prosecutors are pushing for a higher one.
Richard Teng to Head Binance
Binance has announced the appointment of Richard Tenge, its former head of regional markets, as the new CEO. Making the announcement on its blog, Binance said, “Effective immediately, Richard Teng, Binance’s now-former Global Head of Regional Markets, succeeds CZ as CEO.”
Before joining Binance Teng “was the CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market; the Chief Regulatory Officer of the Singapore Exchange (SGX), and the Director of Corporate Finance in the Monetary Authority of Singapore.”
Background to Binance SEC Lawsuit
The investigations that led to the current legal battle between Binance and several United States regulatory agencies began in 2018 when the Justice Department suspected the exchange of committing money laundering rule violations. Since then different US regulatory agencies had been investigating Binance for various offences.
For example, earlier this year the US Securities and Exchange Commission (SEC) filed a lawsuit against Binance for operating an unlicensed securities exchange.
Also, in March this year the US Commodity Futures Trading Commission (CFTC) sued Binance for violating the Commodity Exchange Act (CEA) and CFTC regulations.
According to a recent press release “The CFTC complaint charged Binance with, among other things, illegally offering and uting commodity derivatives transactions to and for U.S. customers, and accepting funds from those customers, who for most of the relevant period were not required to provide any identity-verifying information before trading on the platform.”
It is against such charges that Binance and Zhao were found guilty of U.S money laundering violations.
Conclusion
The US prosecutors have urged a US federal court to restrain Changpeng Zhao from leaving the country as he poses flight risk. Meanwhile, Zhao’s attorneys have maintained that the former Binance CEO will come to the United States on the appointed date, 10 February. In the meantime, the exchange has appointed Richard Tenge as the new CEO of Binance.
FAQs about Binance Exchange
Is Binance under SEC investigation?
The US regulatory agencies made a $4 billion settlement with Binance which should end their investigation on the largest cryptocurrency exchange in the world. In June 2023 the SEC sued Binance for its failure to implement an effective anti-money laundering program. Although the SEC sued crypto exchanges like Binance and Coinbase, there are several other exchanges like Gate.io which have not been investigated as they comply with the US crypto laws.
What’s going on with Binance?
Recently, Binance pleaded guilty to the charges of money laundering violations, the Commodity Futures Trading Commission leveled against it. As a result, it entered a settlement with various regulatory agencies to pay $4 billion for its misconduct. Although the SEC and other US regulatory authorities have sued several crypto exchanges and projects it has not yet filed lawsuits against Gate.io and other exchanges which comply with its legal guidelines.
Why is Binance not legal in US?
Binance US is legal in the United States but it has limited features and products on offer. The United States’ laws require all crypto exchanges operating in the country to adhere to its provisions. Gate.io is another leading exchange that is legal in the United States and complies with its crypto rules.
Is Binance money laundering?
Binance does not launder any money. However, it has been allowing US sanctioned organizations and countries to use its platform to send money. Some of these groups and individuals have been involved in money laundering activities. Unlike Binance, Gate.io complies with the United States anti-money laundering regulations.
Why is the SEC investigating Binance?
The SEC is investigating Binance for various reasons including operating an illegal security exchange, facilitating money laundering and possible expropriation of United States crypto assets. Already, another US government agency, the US Commodity Futures Trading Commission (CFTC), has convicted the exchange for anti-money laundering violations. However, other crypto exchanges like Gate.io that operate in the USA have never been under such investigation as they adhere to its legal provisions.
Is there a lawsuit against Binance?
Some US regulatory agencies such as the SEC and Commodity Futures Trading Commission (CFTC) have filed lawsuits against Binance for its violation of US crypto related regulations like the anti-money laundering provisions as well as its Securities laws. Recently, Binance entered a settlement with US agencies where it is required to pay $4 billion in penalties.
What is Binance accused of?
Some US regulatory agencies such as the SEC and Commodity Futures Trading Commission (CFTC) have accused Binance of violating the country’s crypto related regulations like the anti-money laundering provisions. Although Binance has been accused of such offences cryptocurrency exchanges like Gate.io are free of such charges as they comply with its laws.
Is crypto monitored by the SEC?
The SEC monitors cryptocurrencies which it deems to be securities like SOL and FIL. However, it does not regulate crypto assets it has designated as commodities.
Will Binance report to IRS?
The United States requires Binance to report to IRS cryptocurrency transactions that exceed the stipulated values. It is important to note that in the past Binance was not required to report to the IRS. In general, all centralized exchanges that operate in the United States report to the IRS and/or identify its customers’ KYCs.
