CZ and Binance sued for allegedly aiding cybercriminals in money laundering

On August 16, Binance and its former CEO CZ were sued for allegedly aiding in the laundering of stolen cryptocurrency, in violation of anti-money laundering (AML) regulations and the RICO Act.

According to a filing in Seattle Federal Court on August 16, 2024, the world's largest cryptocurrency exchange Binance and its former CEO Changpeng Zhao (CZ) are facing a class action lawsuit for allegedly aiding in the laundering of stolen cryptocurrency assets, in violation of anti-money laundering (AML) regulations and U.S. law.

The filing states that plaintiffs Philip Martin, Natalie Tang, and Yatin Khanna allege that millions of dollars in their cryptocurrency were stolen through cyberattacks and then transferred to Binance for laundering.

The plaintiffs allege that Binance has completely ignored anti-money laundering (AML) laws and KYC requirements. Furthermore, the exchange has deliberately avoided registering as a Money Services Business (MSB) in the United States. This has turned Binance into a cybercriminal haven, making it easier for bad guys to erase their tracks and conceal the source of stolen assets.

The plaintiffs also argue that without Binance’s involvement, victims would have had a better chance of tracking and recovering stolen assets thanks to the inherent transparency of blockchain. However, with Binance’s lack of oversight and even evading the law, all recovery efforts have been met with a dead end.

It is worth noting that founder CZ was reportedly well aware that the exchange was serving US users but chose to ignore the mandatory regulations, leading to a serious violation of the federal RICO Act, a law against organized crime.

If the lawsuit is successful, Binance could face up to three times the amount of money lost, a major blow to the exchange's reputation and finances.

In a post on X on August 20, Bill Hughes, senior counsel at Ethereum Consensys, expressed doubts that the lawsuit would produce enough evidence to prove the allegations.

@binance and @cz_binance were sued last Friday by class plaintiffs in Seattle federal court. An interesting class action brought by top class action lawyers alleging consumer harm as a result of Binance's money laundering. And the natural, predictable follow-on civil…

He noted that this was an inevitable move following the recent prosecutions and enforcement actions that Binance has faced. The lawsuit puts Binance in a “difficult position” and could have serious consequences for the entire crypto industry if the exchange were forced to go to court.

Hughes said:

“If the lawsuit goes into the evidence collection phase, Binance will face a difficult situation in demonstrating its ability to track and recover assets on the blockchain, and the effectiveness of on-chain analytics tools will also be put in question.”

Clearly, Binance’s position is at a critical crossroads, and any outcome from this lawsuit will affect the future of the crypto industry and blockchain-related regulatory standards.

In addition, this lawsuit could also set a precedent for a series of new legal actions targeting other crypto companies, as authorities and regulators continue to seek to tighten regulations on the market following the troubles that Binance is facing.

Binance has repeatedly been entangled in serious legal problems related to anti-money laundering violations in many countries. Typically, in April 2024, the Indian government fined Binance $ 2.25 million for violating the country's anti-money laundering law. Previously, in 2023, France also opened an investigation into allegations of serious money laundering and non-compliance with financial regulations of this exchange.

Not only that, former CEO Changpeng Zhao had to plead guilty to anti-money laundering violations after the SEC filed a lawsuit in June 2023. Binance has agreed to pay a record $4.3 billion fine, while CZ was forced to step down as CEO and serve a four-month prison sentence for facilitating money laundering on the exchange. CZ began serving his sentence in a California prison in June and is expected to be released in September, shorter than the three-year prison term sought by federal prosecutors.

However, since Richard Teng took over as CEO, Binance has begun implementing stricter measures to comply with global regulations. Teng pledged to strengthen anti-money laundering, implement strict KYC policies, and ensure regulatory compliance. These efforts have helped Binance protect users from losses of up to $2.4 billion in 2024. Notably, the exchange also successfully re-entered the Indian market on August 15 and reached a settlement with the Brazilian SEC in August 2024.