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Sanctions and the Binance DPA

Author: Syedur Rahman  22 November 2023
2 min read

Syed Rahman considers the sanctions aspects of the deferred prosecution agreement that the world’s largest cryptocurrency exchange has concluded.

The announcement that Binance and its founder Changpeng Zhao had pleaded guilty and agreed to pay $4.3 billion in penalties brought to an end investigations by multiple US government agencies, including the Department of Justice (DOJ) and Commodity Futures Trading Commission (CFTC).

Binance and Zhao pled guilty to – among other things – sanctions violations and money laundering. In announcing the outcome, the US Treasury stated that Binance’s money laundering and sanctions offences involved violations of the Bank Secrecy Act (BSA) and numerous sanctions programmes.

Binance was accused of matching trades between US users and those in sanctioned jurisdictions including Russia, Iran, North Korea, Syria and the Crimea region of Ukraine.

Its violations also included a failure to implement programmes 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). There was also a failure to identify and prevent the activities of money launderers, ransomware attackers and other criminals.

The Treasury stated: “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. Any institution, wherever located, that wants to reap the benefits of the US financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime, or face the consequences.”

While the $4.3 billion penalty is certainly substantial, it could be argued that it is not off the scale when Binance’s lack of investment in sanctions and anti-money laundering (AML) compliance is considered. It should not be forgotten that this is an exchange that processed a staggering $9.5 trillion in 2021 alone. And yet the authorities have reported that it did not report more than 100,000 suspicious transactions with organisations that the US has described as terrorist groups. Against the backdrop of such figures, the fine imposed was never going to be a small one.

The outcome, which will see Zhao personally pay $50 million, has been described by prosecutors as one of the largest corporate penalties in US history. Zhao faces a maximum sentence of 18 months in prison under recommended federal sentencing guidelines.

While this can be seen as another blow to the crypto industry – coming in the wake of the recent fraud conviction of FTX founder Sam Bankman-Fried – it is also a notable milestone when it comes to sanctions. It is a high-profile indicator of the sanctions risks that this cutting-edge sector faces – and the price that can be paid for not properly facing up to them.

In fairness, it should be pointed out that Binance is not the sole party at fault here. Culpability should extend to the banking partners of Binance, as well as other brokers and firms utilising an unregistered money services business (MSB) such as Binance.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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