Binance Token Plummets After CEO Changpeng Zhao Settlement

Binance's coin value plunged on Tuesday after the company and its CEO Changpeng Zhao pleaded guilty to offenses that included violating anti-money laundering laws and failure to register as a platform for transmitting money.

As part of the settlement, Zhao, colloquially known as "CZ", who founded Binance and turned it into the world's largest crypto exchange, will relinquish his role atop the company. U.S. officials also said on Tuesday that an independent monitor has been appointed who will "ensure Binance's complete exit from the United States."

The agreement requires Binance to forfeit $2.5 billion and pay a fine of $1.8 billion, bringing the total penalty from the Justice Department settlement to $4.3 billion. Binance's coin value in relation to the U.S. dollar plummeted nearly 11 percent to $226 as of 6.00 p.m. ET on Tuesday, according to Google Finance data.

"Binance became the world's largest cryptocurrency exchange in part because of the crimes it committed—now it is paying one of the largest corporate penalties in U.S. history," Attorney General Merrick Garland said on Tuesday.

The settlement agreement between Binance and American authorities included the U.S. Justice Department along with the Commodity Futures Trading Commission (CFTC) and the Treasury Department.

Yellen Accuses Binance of Being Untruthful

Treasury Secretary Janet Yellen accused Binance of being untruthful to authorities and withholding information from law enforcement officers.

"Our work revealed that Binance claimed to have exited the U.S. market years ago, but actually did not, retaining U.S. users and other significant ties with the United States," Yellen said.

The company had gaps in its anti-money laundering processes and "deliberately" undercut its own sanctions controls, while also failing to report suspicious transactions, Yellen added.

"This meant Binance was allowing illicit actors to transact freely, supporting activities from child sexual abuse, to illegal narcotics, to terrorism, across more than 100,000 transactions," she said. "That includes transactions associated with terrorist groups like Hamas's Al-Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda, and ISIS. Binance processed these transactions, but it never filed a single suspicious activity report. And it also allowed over 1.5 million virtual currency trades that violated U.S. sanctions."

Binance 'Pleased' It Settled Case

Binance said in a statement shared with Newsweek that it was "pleased" that it settled the case with U.S. authorities which "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."

The company appointed Richard Teng, its former Global Head of Regional Markets, as its new CEO. However, the company suggested that Zhao may still stay involved with the company.

"Our former CEO remains Binance's majority shareholder and a resource available for consultation on historical areas of our business," the company said in its statement.

Teng, who has previous experience working as a regulator in the United Arab Emirates' Abu Dhabi and Singapore, said on X, formerly Twitter, that he will lean into this experience to guide the company forward.

"I intend to use everything I've learned over the past three decades of financial services and regulatory experience to guide our remarkable, innovative, and committed team," he said.

He added that his goal was to reassure users of the company's strength and work with regulators to "uphold high standards" while protecting consumers.

"We are here to stay," he said. "Excited for the days ahead!"

Crackdown Sends a Message

The crackdown of Binance and Zhao is the latest effort by U.S. authorities to hold accountable cryptocurrency platforms that violate regulations and rules of operating in the American financial system. Earlier this month, Sam Bankman-Fried, founder of the FTX cryptocurrency exchange, was convicted of fraud and conspiracy charges that could lead to 110 years in jail.

Officials said that Tuesday's moves were a signal to the digital assets industry.

"If virtual currency exchanges and financial technology firms wish to realize the tremendous benefits of being part of the U.S. financial system and serving U.S. customers, they must play by the rules. And if they do not, the U.S. government will take action," Yellen said.

Attorney General Garland also warned the industry.

"The message here should be clear: Using new technology to break the law does not make you a disruptor. It makes you a criminal," he said in a press conference after Zhao appeared in court.

Garland accused Binance of knowingly failing to enact anti-money laundering measures on their platform.

"In a February 2019 chat, one compliance employee wrote that they needed a banner that said: 'Is washing drug money too hard these days? Come to Binance; we got cake for you,'" Garland pointed out. "By failing to comply with U.S. law, Binance made it easy for criminals to move their stolen funds and illicit proceeds on its exchange."

Binance Workers Told to Hide U.S. Connections

The Attorney General also said that Zhao and other Binance employees encouraged American users to hide their U.S. connections.

"Zhao himself said in a September 2019 chat: 'If we blocked U.S. users from day one, Binance will be not [sic] as big as we are today. We would also not have had any U.S. revenue we had for the last two years.' He then added: 'Better to ask for forgiveness than permission,'" Garland recounted Zhao's message.

Binance said in its statement that it was working to change its compliance structures.

"We have updated and expanded our in-house anti-money laundering (AML) detection and analytics capabilities. Binance's AML compliance is now an industry standard, and Binance continues to make improvements to its comprehensive AML policies," the company said. "Binance also plays a significant leadership role in helping law enforcement combat cyber and financial crime and terrorism."

Tuesday's settlement concluded a probe that has been ongoing for years. Zhao could spend up to 10 years in prison. As part of the settlement, Zhao is waiving his right to appeal as long as he is not sentenced to more than 18 months in jail, Bloomberg said, citing Judge Brian Tsuchida at the plea hearing at the U.S. District Court for the Western District of Washington.

Zhao, who was also personally fined $50 million as part of Tuesday's settlement, was released to head back to the U.A.E where he is based while he waits for his sentencing which was delayed for six months, Bloomberg reported.

"I want to close the issue, I want to take responsibility and close this chapter of my life," Zhao told the court, according to Bloomberg. "I will return."

Zhao, or "CZ," launched Binance in 2017 and led the company to become one of the world's largest digital asset exchanges in the world by trading volume, according to the company.

"CZ spent his youth flipping burgers before studying at McGill University Montreal. In 2005, CZ quit his role as head of the Bloomberg Tradebook Futures Research & Development team and moved to Shanghai to start Fusion Systems," Binance says in the company biography on its website. "Soon thereafter, he learned about Bitcoin and joined Blockchain.com as Head of Technology."

Binance offers a platform for 360 cryptocurrencies and boasts more than 150 million users, according to Bloomberg.

The business turned Zhao, who was born in China but grew up in Canada, into a wealthy man. According to the Bloomberg Billionaires Index, he was worth more than $20 billion as of November 20, mostly from his controlling stake in Binance.

Update 11/21/23, 5:40 p.m. ET: This article was updated throughout to includes quotes from Treasury Secretary Janet Yellen, Attorney General Merrick Garland, Binance and additional context and background.

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