Binance, one of the leading cryptocurrency exchanges, has agreed to pay a staggering $2.7 billion to the Commodity Futures Trading Commission (CFTC). This payment, comprising both disgorgement and penalties, marks the conclusion of the CFTC’s long-standing enforcement action against the crypto giant. Additionally, Changpeng Zhao, popularly known as CZ, the founder and ex-CEO of Binance, is set to pay a hefty fine of $150 million to the regulatory body.
This significant financial move follows the Dec. 18, 2023, announcement by the CFTC. The United States District Court for the Northern District of Illinois formalized the consent order against Binance and Zhao. The breakdown of the settlement includes Binance forking over $1.3 billion in transaction fees identified as illegitimate and a further $1.3 billion as a civil monetary penalty. Meanwhile, Zhao himself is contributing $150 million as a personal penalty.
The origins of this case traced back to March when the CFTC filed a lawsuit against Binance and Zhao. The allegations were serious, accusing them of soliciting U.S. customers while willfully ignoring the country’s regulatory framework. The lawsuit also pointed fingers at Binance and its executives for assisting U.S. clients in evading compliance controls.
In response to these allegations, Zhao denied any wrongdoing, and Binance sought to dismiss the lawsuit, arguing that the CFTC was overreaching by trying to regulate entities and individuals outside the U.S. jurisdiction.
Legal Implications and Corporate Reforms
The recent settlement brings an end to the CFTC’s charges against Binance and Zhao, wrapping up a significant legal confrontation. As part of the agreement, Binance and Zhao must ensure the implementation of a robust corporate governance structure. This structure will include an independent Board of Directors, along with dedicated Compliance and Audit Committees, ensuring adherence to regulatory standards and ethical practices.
Despite resolving the CFTC matter, Binance and Zhao continue to face legal challenges. Zhao, who relinquished his CEO role at Binance in November 2023, admitted to violations of anti-money laundering regulations. He also stepped down as chairman of the board of directors at Binance.com, the American subsidiary of the exchange. Facing a possible 18-month prison sentence, Zhao is currently awaiting his sentencing scheduled for Feb. 23, 2024.
Moreover, Binance reached a separate $4.3 billion settlement with the U.S. Department of Justice (DOJ), acknowledging lapses in complying with the Bank Secrecy Act and other related infringements. This plea was part of a coordinated resolution with various U.S. regulatory bodies, including FinCEN and OFAC, along with the CFTC.
The crypto exchange’s legal troubles extend to ongoing disputes with the Securities and Exchange Commission (SEC). Following an accusation by the SEC of securities violations in June, Binance has been actively contesting these allegations, filing a lawsuit to dismiss the SEC’s claims. This legal tussle underscores the increasing scrutiny and regulatory challenges facing the cryptocurrency industry, especially concerning compliance and adherence to financial regulations.