AML Developments: What You Need to Know
On November 21, 2023, the US Department of Justice revealed charges against cryptocurrency exchange Binance and Binance CEO Changpeng Zhao for violating the anti-money laundering provisions of the Bank Secrecy Act ( "BSA") and for causing violations of US sanctions issued pursuant to International Law. Emergency Economic Powers Act (โIEEPAโ), among other violations. U.S. v. Binance Holdings Ltd. d/b/a Binance.com, No. 23-cr-00178 (WD Wash. Nov. 14, 2023), U.S. v. Changpeng Zhao, No. 23-cr- 00179 (WD Wash. (Nov. 14, 2023). On the same day, Binance pleaded guilty to three charges, including conspiracy to conduct an unlicensed money transmission business ("MTB") and failing to maintain an effective anti-trust program. money laundering ("AML"), conducting unlicensed MTB, and violating the IEEPA. United States v. Binance, Dkt. No. 23. Mr. Zhao, in turn, pleaded guilty to failing to maintain an effective AML program United States v. Zhao, Dkt. No. 21. Binance and Mr. Zhao further agreed to reach agreements to resolve matters involving the Commodity Futures Trading Commission and the U.S. Department of the Treasury..S. Treasury announces largest-ever settlements with world's largest virtual currency exchange, Binance, for violations of US sanctions and anti-money laundering laws.US Department of the Treasury (November 21, 2023), https://rb.gy/pkirwl; Binance and CEO Changpeng Zhao Agree to Pay $2.85 Billion for Willfully Evading U.S. Law, Illegally Operating a Digital Asset Derivatives Exchange, and Other ViolationsCommodity Futures Trading Commission (November 21, 2023), https://rb.gy/eply28. This is the first time the CFTC has charged a compliance officer with individual liability.
According to criminal information revealed against Binance, the cryptocurrency exchange allegedly facilitated billions of dollars in cryptocurrency transactions on behalf of clients without implementing adequate know-your-customer procedures or engaging in adequate monitoring of the transactions. United States v. Binance, Dkt. No. 1 in 6-26. The result, as alleged in the information, was that Binance failed to comply with BSA and US sanctions prohibitions. Binance allegedly facilitated transactions involving sanctioned jurisdictions such as North Korea, Syria, and Russian-occupied regions of Ukraine and processed transactions involving proceeds from darknet market transactions and other cyber-related crimes, including ransomware and product of scams. ID. in 1-2.
The Binance charges demonstrate that money laundering will continue to be a major focus of law enforcement by multiple federal government agencies. In the wake of previous high-profile anti-money laundering efforts, including those involving Tornado Cash, Coinbase, and Shinhan Bank, the Binance case serves as a reminder that sanctions compliance and combating money laundering must continue. being a priority for financial institutions of all types based in the United States. Binance's settlement with the Treasury Department's Financial Crimes Enforcement Network (โFinCENโ) alone amounted to $4.3 billion, the largest penalty in Treasury Department history. ID.
Implementing an adequate anti-money laundering and sanctions compliance program is challenging and requires significant investment and administrative attention. KYC and transaction monitoring are intensive processes and require sustained effort. Financial institutions operating in the United States would do well to seriously consider the risks presented by their business as it stands now. They should also consider the changing needs of their programs as the business develops, particularly those companies that are in growth mode, seeking to address any known issues and ensuring compliance programs are established to address the company's risk level. As it grows.
Binance's requests also highlight the importance of BSA compliance for cryptocurrency exchanges, money transmitters, and financial institutions outside the US, to the extent they operate in the US. Virtual currencies are now in the mainstream of regulatory review, and financial institutions outside the US have been subject to regulatory scrutiny for years. These institutions will be subject to the same standards and levels of scrutiny, if not greater, than traditional companies and/or companies based in the United States. A central focus of Binance's reporting was the exchange's attempt to grow its US customer base without meeting its US obligations. United States v. Binance, Dkt. No. 1 in 11-20. While Binance's fact pattern may be suis generis, the charges are a reminder to companies both US-based and non-US-based of the need to address compliance obligations and continue to do so as appropriate. that an institution develops.
