Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, pleaded guilty to money laundering violations on Tuesday, a stunning blow to the most powerful and influential figure in the global crypto industry. Binance itself also pleaded guilty and agreed to pay $4.3 billion in fines and restitution to the government. As part of his guilty plea, Mr. Zhao agreed to pay a $50 million fine and step down from his role as the company’s chief executive.
The plea deal included the appointment of a government monitor to oversee the business. Mr. Zhao is barred from any involvement in Binance until three years after the monitor is appointed. In a statement, Binance said the agreement acknowledged “our company’s responsibility for historical, criminal compliance violations.”
Mr. Zhao said on Twitter, the platform formerly known as Twitter, that he had “made mistakes” and “must take responsibility.” But he also said he was looking forward to taking a break from his exhausting schedule, and planned to do some “passive investing” in various crypto projects.
The guilty pleas from Binance and Mr. Zhao were a monumental development for the relatively young and fast-growing crypto world. At times, Binance has processed two-thirds of all digital currency trades. The plea agreement was announced at a news conference in Washington attended by Treasury Secretary Janet L. Yellen and Attorney General Merrick Garland.
Mr. Zhao and other Binance executives “engaged in a deliberate and calculated effort to profit from the U.S. market without implementing the controls that are required by U.S. law,” Mr. Garland said. The penalty in Binance’s settlement is one of the largest ever imposed by the U.S. government against a financial firm.
The authorities said that Binance had failed to institute programs to report suspicious transactions involving terrorist groups, and allowed customers from Iran, Cuba and Syria – all of which face sanctions – to access the platform. Binance also offered some important customers a chance to regain access to its main trading platform even after they had been kicked off over concerns that they were engaged in criminal activity.
The filing also cited a June 2019 call in which Mr. Zhao advised other Binance employees to talk to U.S.-based VIP customers using methods like phone calls that would leave “no trace” of the interactions. One Binance compliance employee said in a written communication that the company had an open door to people laundering drug money.
Before the settlement, regulators had made moves this year to penalize Binance. In March, the Commodity Futures Trading Commission filed a civil suit against the firm and Mr. Zhao, accusing them of violating financial rules designed to protect U.S. investors. Then in June, the Securities and Exchange Commission charged Binance and Mr. Zhao with mishandling customer funds and lying to regulators.
After the S.E.C. lawsuit, banks cut off access to Binance.US, forcing the firm to freeze much of its trading activity. In public, Mr. Zhao has often dismissed negative news stories by labeling them as “FUD,” or fear, uncertainty and doubt.
The drumbeat of enforcement actions this year has hurt Binance’s business. The company’s share of the crypto trading market has dipped amid the onslaught from regulators, and several top executives have left the company. Mr. Zhao’s fate remains unclear. His sentencing is months away. In the meantime, his bail was set at $175 million secured by $15 million in cash, and a federal judge permitted him to return to the United Arab Emirates, where he has been living this year.