US Justice Department is seeking more than US$4 billion from Binance to end criminal case

The US Justice Department is seeking more than US$4 billion from Binance Holdings as part of a proposed resolution of a years-long investigation into the world’s largest cryptocurrency exchange.

Negotiations between the Justice Department and Binance include the possibility that its founder Changpeng Zhao would face criminal charges in the US under an agreement to resolve the probe into alleged money laundering, bank fraud and sanctions violations, according to people familiar with the discussions.

Zhao, also known as “CZ,” is living in the United Arab Emirates, which does not have an extradition treaty with the US, but that does not prevent him from coming voluntarily.

Binance did not respond to multiple emails and phone calls seeking comment. The Justice Department declined to comment.

An announcement could come as soon as the end of the month, though the situation remains fluid, according to the people, who asked not to be named discussing a confidential matter.

The BNB cryptocurrency, a token native to Binance and the BNB Chain blockchain that was created by the exchange, rose as much as 8.5 per cent to US$266.42 after Bloomberg reported the negotiations.

“A settlement with a monitoring provision in place could be a compromise that protects investors and allows Binance the option to evolve into a more institutional and compliant future direction,” said Matt Walsh, founding partner at cryptocurrency venture firm Castle Island Ventures.

The exact timing and structure of the proposed resolution and specific charges aren’t clear. However, Binance would likely be expected to pay more than US$4 billion, which would be one of the largest-ever penalties in a criminal cryptocurrency case.

The investigation is being led by the criminal division’s money laundering and asset recovery section, along with the national security division and the US attorney’s office in Seattle.

The agreement seeks to strike a balance that would allow Binance to continue operating, rather than risk a collapse that could cause negative fallout for markets and cryptocurrency holders, said three of the people.

Binance CEO Zhao Changpeng speaks via video link during the the Hong Kong Web3 Festival, April 12, 2023. Photo: Matt Haldane.

Binance has sought to minimise its exposure in any settlement, including pushing for a deferred prosecution agreement, another person said.

If Binance and the DOJ agree on a deferred-prosecution-agreement, the Justice Department would file a criminal complaint against the company. The US would not go forward with a prosecution as long as the company meets prescribed conditions, which usually include paying a substantial penalty and agreeing to a detailed statement of facts outlining its wrongdoing. A process would be set up to monitor the company’s compliance.

With respect to possible sanctions violations, the Justice Department has been investigating Binance for allegedly aiding in the evasion of US sanctions against Iran and Russia, one of the people said. Binance has also been under scrutiny for whether it allowed transactions that helped finance Hamas.

The case is one of the largest investigations the Justice Department has ever conducted into a cryptocurrency company. A settlement would represent another historic resolution following the collapse of cryptocurrency exchange FTX, which resulted in the conviction of its founder Sam Bankman-Fried on fraud and conspiracy charges earlier this month.

While Justice Department officials have been pushing for a broad leadership change at the company, it is not clear if other Binance executives besides CZ would face charges in the case.

Binance has faced legal and regulatory action from other US agencies, as well as increased scrutiny from US lawmakers.

In June, the Securities and Exchange Commission filed a lawsuit accusing Binance and Zhao of mishandling customer funds, misleading investors and regulators, and breaking securities rules.

The lawsuit effectively crippled Binance’s US unit. Brian Shroder, chief executive officer of Binance.US, left the company in September amid another round of job cuts at the struggling cryptocurrency platform. The company eliminated about one third of its workforce, or more than 100 positions. Trading volumes on Binance.US have slowed to a trickle after the exchange lost its banking support and suspended US dollar deposits.

The Commodity Futures Trading Commission in March alleged that Binance and Zhao routinely broke US derivatives rules as the firm grew to be the world’s largest digital-asset trading platform. Binance should have registered with the agency years ago and continues to violate the CFTC’s rules, the regulator said at the time.

Binance has contested the lawsuits and said it actively cooperated with the regulators’ probes and was disappointed by the enforcement actions. In a March statement, CZ said the CFTC complaint “appears to contain an incomplete recitation of facts” and that Binance does not agree with how many of the issues are characterised. The company called the SEC filing an attempt by the agency to regulate “with the blunt weapons of enforcement and litigation rather than the thoughtful, nuanced approach demanded by this dynamic and complex technology”.

CZ worked at Bloomberg, the parent company of Bloomberg News, from 2002 to 2005.