Syedur Rahman explains the background to the case and the issues at the heart of it.
Binance, the world’s largest crypto trading platform, is being sued by relatives of victims of Hamas’ October 7 2023 attack on Israel.
Binance is accused in the lawsuit of knowingly facilitating transactions totalling more than a billion US dollars for terrorist groups. The legal action comes just weeks after Binance’s founder Changpeng Zhao was pardoned by US President Donald Trump, having pleaded guilty to failing to combat money laundering on the exchange.
The lawsuit alleges that Zhao and his associate Guangying “Heina” Chen intentionally designed Binance to be “a criminal enterprise to facilitate money laundering on a global scale”. According to the legal action, Binance laundered money for Hamas, even after pleading guilty in November 2023 and paying a $4.32 billion criminal penalty for violating federal anti-money laundering and sanctions laws.
The plaintiffs include 306 Americans with connections to victims of the Hamas Israel attack. Their lawsuit states: “Years before October 7, Binance knew that Hamas, the [Islamic Revolutionary Guard Corps of Iran], Hezbollah, [Palestinian Islamic Jihad] and other terrorist organizations were all transacting regularly on its platform and nevertheless actively assisted their use of the platform.
“It did so at a time when Hamas, in particular, was publicly directing its donors to send funds to so-called ‘crypto wallets’ held with Binance.”
Damages
The plaintiffs are seeking what is called treble damages; under a law allowing victims of international terrorism to recover three times the damages they sustained. They allege that although Binance was legally required to file suspicious activity reports (SARs) on the terror groups’ activities, it tried to manipulate how the transactions were reported in order to avoid attracting official scrutiny and “shield’’ its terrorist customers.
Binance has declined to comment on the lawsuit. But it has said it fully complies with international sanctions laws and has “executed a wide-ranging transformation” of its sanctions framework in recent years.
The lawsuit has credibility in the sense that the US Anti-Terrorism Act provides the plaintiffs with concrete grounds to sue Binance. However, their chances of success will depend on whether they can establish a direct link between Binance’s actions or omissions and the funding of Hamas. In any event, the case is highly dependent on the evidence that can be provided and the defence that Binance will be able to raise. Binance may also want to challenge the lawsuit taking place in the US, where it is not based.
Timing
The timing of this case is likely to have been dependent on the aforementioned 2023 criminal investigation into Binance that saw the exchange admit wrongdoing. Since then, collecting evidence for the lawsuit and seeking victims to join it will have taken considerable time and resources, which may account for it only now becoming a reality.
Until now, there have been no terrorism financing lawsuits directly targeting crypto exchanges. But there have been recent investigations and lawsuits that have focused on exchanges for not meeting their anti-money laundering (AML) and know your customer (KYC) obligations.
As the first exchange to face such legal action, Binance is likely to argue that it had no knowledge whatsoever that any transaction it had involvement with would be used to finance Hamas or any other terrorist organisation. It may also assert that its AML and KYC processes are legally compliant and / or of a standard that means it should not be found guilty in this case.
