Inside Binance's Guilty Plea, Biggest Fine in Crypto History

"The king of crypto's largest outlaw empire told employees for years that he would never turn himself in. But on Tuesday, a jittery Changpeng Zhao showed up in a Seattle federal court to plead guilty to violating U.S. money-laundering rules.

"I've not caused problems before, I've never been a criminal. And I've never been into a courthouse before. So this is new to me," Zhao told a judge.

Hours earlier, Zhao and his company, Binance, agreed to plead guilty to resolve a Justice Department criminal investigation that has dogged the world's largest cryptocurrency exchange almost since its launch. As part of its plea, Binance will pay a $4.3 billion fine, and Zhao stepped down as CEO. He faces a prison sentence as long as 18 months.

It was a massive twist in the life of the crypto industry's most influential figurehead, who launched the online exchange in 2017 and developed it into a money-spinning trading machine.

He became a multibillionaire along the way. The Justice Department said Zhao's refusal to abide by financial-crime laws, in pursuit of unfettered trading profits, turned his exchange into a colossal money-laundering hub for terrorists, cybercriminals and customers in sanctioned countries such as Iran and Russia.

His decision to come to terms with the government's charges reflected a sense of pragmatism. The threat of indictment hung over Binance and Zhao for months, with prosecutors saying they would charge them if they didn't agree to plead guilty and show up in a U.S. court.

The deal allows Binance to continue to operate. Zhao, 46 years old, will move to the sidelines, but retains his ownership. An internal monitor prescribed by the deal could constrain or even choke off the company's business, but might also give reassurance to Binance customers that the regulatory troubles are behind it.

Binance's ability to withstand such a large penalty -- the largest levied against a crypto firm -- reflected the huge war chest the company has amassed. Company insiders have said it had set aside $8 billion for a settlement.

"These resolutions acknowledge our company's responsibility for historical, criminal compliance violations, and allow our company to turn the page," Binance said, adding it has poured resources into compliance.

The DOJ had its own reasons to resolve the case. A trial comes with risks and would have taken years to resolve. Binance mostly operates outside the U.S., limiting the ability to disrupt its operations. Zhao is based in the United Arab Emirates, which doesn't have an extradition treaty with the U.S., though last year it signed a law-enforcement cooperation treaty with Washington.

By late 2022, some of the DOJ prosecutors believed the evidence they had accumulated justified charging Binance and Zhao, according to several people familiar with the case. Among the charges under investigation then was money-laundering conspiracy, a more severe charge than what Zhao and Binance ultimately pleaded guilty to.

That was part of the DOJ's indictment threat. Zhao and Binance worried an indictment would set off a panic, according to people familiar with the matter, with customers rushing to withdraw their funds.

Regulators were also bringing pressure. In March, the Commodity Futures Trading Commission sued Binance and Zhao, revealing some of the evidence that prosecutors also wielded.

Zhao, then ensconced in Dubai, instructed Binance's lawyers to engage with the Justice Department to search for a deal. Binance's defense attorneys at law firm Gibson Dunn & Crutcher met with DOJ officials through the year and argued that the exchange's compliance program was much improved and that a criminal prosecution would hammer the crypto market, just as it was in meltdown.

Zhao offered an alternative to prison time: house arrest in New York, according to a person familiar with the negotiations. Zhao resisted giving up control of the company or stepping aside, too. His general counsel quit this July over disagreements on legal strategy.

But as the DOJ talks pressed on this fall, Zhao started floating his resignation to his lieutenants at Binance. The exchange's head of regional markets, Richard Teng, a former Singaporean regulator, emerged as Zhao's top choice.

Zhao also bowed to pressure in September from the DOJ to sell Binance's Russia business, after The Wall Street Journal revealed customers there were using sanctioned Russian banks.

At the Seattle courthouse Tuesday, prosecutors sought to prevent Zhao from leaving the country until his sentencing. They argued that Zhao's wealth and citizenship in the U.A.E. might lead him to skip sentencing, currently scheduled for February.

Magistrate Judge Brian A. Tsuchida sided with Zhao, releasing him on a $175 million bond. Zhao's sister also put up her $5 million California home as collateral to ensure her brother shows up for his sentencing.

"I have full intention to come back here and close this issue," Zhao told Judge Tsuchida. "Otherwise, I wouldn't be here today."" [1]

1. Inside Binance's Guilty Plea, Biggest Fine in Crypto History. Kowsmann, Patricia; Berwick, Angus; Ostroff, Caitlin; Michaels, Dave.  Wall Street Journal, Eastern edition; New York, N.Y.. 24 Nov 2023: B.1.