US seeks over $4 billion from crypto exchange Binance to end criminal case

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 resid­ing in the Unit­ed Arab Emi­rates, which doesn’t have an extra­di­tion treaty with the US, but that doesn’t pre­vent him from com­ing voluntarily.

Binance didn’t 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 exact tim­ing and struc­ture of the pro­posed res­o­lu­tion and spe­cif­ic charges aren’t clear. How­ev­er, Binance would like­ly be expect­ed to pay more than $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 cryp­to hold­ers, said three of the people.

Binance has sought to min­i­mize 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 cryp­to 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 isn’t 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 cryp­to 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 doesn’t agree with how many of the issues are char­ac­ter­ized. 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 LP, the par­ent com­pa­ny of Bloomberg News, from 2002 to 2005.