Binance and its former CEO, Changpeng “CZ” Zhao, are embroiled in a new legal challenge as they face a class-action lawsuit initiated by three cryptocurrency investors. These plaintiffs claim that they could not recover their stolen assets due to the exchange’s failure to implement adequate anti-money laundering measures. Filed on August 16 in the United States District Court for the Western District of Washington, Seattle, the lawsuit centers on the allegation that Binance played a critical role in allowing thieves to launder stolen cryptocurrency, effectively making it untraceable.
According to the lawsuit, the criminals transferred the stolen crypto assets to Binance to “remove the connection between the ledger and their digital assets.” The plaintiffs emphasize that the inherent nature of blockchain technology provides a permanent record of transactions, which ordinarily makes assets traceable unless interfered with. The suit claims that platforms like Binance, by failing to adequately screen and stop these transfers, become conduits for laundering, thus violating the Racketeer Influenced and Corrupt Organizations (RICO) Act.
The Role of Binance in the Alleged Money Laundering
The complaint argues that without platforms willing to obfuscate the origins of digital assets, such as Binance, authorities could potentially trace and recover stolen assets by analyzing blockchain transactions. This makes the exchange’s role pivotal in the alleged money laundering process, as per the lawsuit’s claims.
Bill Hughes, senior counsel and director of global regulatory matters at Ethereum development firm Consensys, expressed skepticism regarding the lawsuit’s ability to prove these allegations. On August 20, Hughes commented on the class-action suit via an X post, describing it as a “natural, predictable follow-on civil action” aiming to leverage ongoing government prosecutions against Binance.
Hughes highlighted that the lawsuit places Binance in a precarious position, potentially having far-reaching implications for the crypto industry if the case progresses to detailed discovery or pre-trial motions. He pointed out, “If this case goes far into discovery and even to dispositive pre-trial motions, then the efficacy of blockchain analytics itself and on-chain asset recovery will be on trial.”
Legal and Regulatory Background of Binance and CZ
In November 2023, CZ pleaded guilty to violating US money laundering laws and resigned as CEO of Binance as part of a settlement agreement that included a substantial $4.3 billion fine for civil regulatory enforcement actions. In April, following these developments, a federal judge sentenced CZ to four months in prison, which was notably less than the three years requested by federal prosecutors.
Additionally, the US Securities and Exchange Commission (SEC) filed a lawsuit against Binance and CZ in June 2023, accusing them of misleading the SEC about market surveillance controls and artificially inflating trading volumes. Most of this case was allowed to proceed by a court ruling on June 28.
The unfolding legal battles and the new class-action lawsuit underline the intensifying scrutiny and regulatory challenges facing Binance and other cryptocurrency platforms. As the legal outcomes of these actions remain pending, the cryptocurrency industry watches closely, given the potential precedents that could shape future regulatory landscapes and operational standards within the sector.
Featured image credit: Web Summit via Flickr
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