$4.3 Billion Wasn’t Enough: Binance and CZ Face New Lawsuit Over Alleged Money Laundering

In short:

• New class action lawsuit filed against Binance and CZ in US court
• Alleges Binance Facilitated Laundering of Stolen Cryptocurrencies
• Claims Binance violated RICO Act and financial regulations
• $4.3 Billion Settlement with DOJ to Follow in 2023
• Scrutinize Blockchain Analytics and Asset Recovery Methodologies

Binance, the world’s largest cryptocurrency exchange, and its former CEO Changpeng “CZ” Zhao are facing a new class action lawsuit filed in the U.S. District Court for the Western District of Washington, Seattle.

The lawsuit, filed by three cryptocurrency investors, alleges that Binance failed to prevent money laundering, allowing thieves to use the platform to launder stolen digital assets.

The plaintiffs allege that their cryptocurrencies were stolen by the thieves and then deposited onto Binance in order to “remove the connection between the ledger and their digital assets,” making the stolen funds untraceable. They argue that Binance’s role in this process violates the Racketeer Influenced and Corrupt Organizations (RICO) Act.

This legal action follows Binance’s $4.3 billion settlement with the U.S. Department of Justice in November 2023, in which the exchange admitted to violating anti-money laundering laws.

As part of the settlement, CZ stepped down as CEO and pleaded guilty to one count of violating anti-money laundering regulations. He was later sentenced to four months in prison.

The new lawsuit alleges that Binance’s meteoric rise to the largest cryptocurrency exchange was fueled by intentionally evading U.S. regulations, which would have limited its access to the U.S. market. The plaintiffs allege that CZ prioritized profits over legal compliance, creating an environment in which U.S. users were encouraged to circumvent the platform’s minimal compliance checks.

According to the complaint, Binance failed to implement robust anti-money laundering (AML) and Know Your Customer (KYC) protocols, making the exchange a hub for laundering cryptocurrencies, which are often stolen through hacks and other illegal activities.

The lawsuit argues that it would be easier for authorities to track bad actors by tracing their steps on the blockchain, without platforms like Binance to launder cryptocurrencies.

Legal experts have noted that this class action is a predictable follow-up to previous government enforcement actions. Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensys, pointed out that if the case goes to trial, it could have significant implications for the entire cryptocurrency industry.

Hughes noted that the lawsuit puts Binance in a difficult position, as the company may have to make arguments about tracing and recovery that could have implications for the broader industry.

The lawsuit also raises questions about the effectiveness of blockchain analytics and on-chain asset recovery methods. If the case moves to discovery or pre-trial motions, these tools and techniques could come under scrutiny.

This legal action is part of a series of challenges that Binance and CZ are facing. In addition to the settlement with the Department of Justice, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance in June 2023, accusing the exchange of misleading the SEC about its market surveillance controls and artificially inflating its trading volumes.