On November 21, U.S. authorities announced that the crypto-exchange Binance and its founder Changpeng Zhao pled guilty to federal charges and agreed to pay $4.3 billion in penalties. The historic settlement resolves investigations by multiple government agencies, including the Department of Justice (DOJ) and Commodity Futures Trading Commission (CFTC), and the underlying violations are covered under multiple U.S. whistleblower award programs.
Binance and Zhao pled guilty to money laundering, unlicensed money transmitting, sanctions violations, illegally operating a digital asset derivatives exchange, and other violations. In addition to the DOJ and CFTC, the settlement covers charges by the Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and IRS Criminal Investigation (CI).
In its press release, the Treasury Department explains that Binance’s money laundering and sanctions violations involved violations of the Bank Secrecy Act (BSA) and multiple sanctions programs. “The violations include failure to implement programs to prevent and report suspicious transactions with terrorists — including Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad (PIJ), Al Qaeda, and the Islamic State of Iraq and Syria (ISIS) — ransomware attackers, money launderers, and other criminals, as well as matching trades between U.S. users and those in sanctioned jurisdictions like Iran, North Korea, Syria, and the Crimea region of Ukraine,” the release explains. “By failing to comply with AML and sanctions obligations, Binance enabled a range of illicit actors to transact freely on the platform.”
“Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” said Secretary of the Treasury Janet L. Yellen. “Today’s historic penalties and monitorship to ensure compliance with U.S. law and regulations mark a milestone for the virtual currency industry. Any institution, wherever located, that wants to reap the benefits of the U.S. financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime, or face the consequences.”
In 2020, Congress established the AML Whistleblower Program, which was later reformed by the AML Whistleblower Improvement Act. The program offers monetary awards and anti-retaliation protections to whistleblowers who report money laundering violations, such as violations of the BSA. Furthermore, the AML Whistleblower Improvement Act expanded the program to cover whistleblowers who report sanctions violations.
Through the AML Whistleblower Program, qualified whistleblowers are entitled to monetary awards of 10-30% of the sanctions collected by the government in the case connected to their whistleblowing. The Treasury Department and FinCEN are currently drafting regulations for the program, though whistleblowers are still eligible for awards in the meantime.
The historic $4.3 billion settlement also resolved charges filed by the CFTC against Binance and Zhao. In its press release, the CFTC explains that it “charged Binance with, among other things, illegally offering and executing commodity derivatives transactions to and for U.S. customers, and accepting funds from those customers, who for most of the relevant period were not required to provide any identity-verifying information before trading on the platform.”
“Binance’s activities undermined the foundation of safe and sound financial markets by intentionally avoiding basic, fundamental obligations that apply to exchanges, all the while collecting approximately $1.35 billion in trading fees from U.S. customers,” said CFTC Chairman Rostin Behnam. “American investors, small and large, have demonstrated eagerness to incorporate digital asset products into their portfolios. It is our duty to ensure that when they do so, the full protections afforded by our regulatory oversight are in place, and that illegal and illicit conduct is swiftly addressed. When, as here, an entity goes even further, deliberately avoiding to employ meaningful access controls, intentionally avoiding knowing customers’ identities, and actively concealing the presence of U.S. customers on its platforms, there is no question that the CFTC will strike hard and aggressively.”
Established in 2010 with the passage of the Dodd-Frank Act, the CFTC Whistleblower Program offers monetary awards to individuals who voluntarily provide information about commodities violations. Qualified CFTC whistleblowers are entitled to monetary awards of 10-30% of the funds collected by the CFTC in the enforcement action connected with their disclosure.
Furthermore, the Dodd-Frank Act’s related action provisions entitle CFTC whistleblowers to awards based on sanctions collected by other government agencies in instances where a qualified CFTC whistleblower’s disclosure also contributed to the success of the related actions.
As part of their confidentiality protections, the CFTC and FinCEN do not reveal when a whistleblower was involved in the success of the case. If a whistleblower was involved in the Binance case, under either the CFTC or AML whistleblower programs they could be eligible for an award of up to $1.29 billion.