Fine of $4.3 billion: U.S. Treasury reaches largest settlement in history with Binance

Source: U.S. Department of the Treasury

Compiled by: Block unicorn

According to the settlement agreement, Binance will pay $3.4 billion to FinCEN and $968 million to OFAC, marking the largest fines in their respective histories. The investigation by IRS CI led to actions by the Department of Justice.

The U.S. Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the Internal Revenue Service Criminal Investigation (IRS CI), has taken unprecedented action to hold Binance Holdings Limited and its affiliates (collectively referred to as Binance) accountable for violations of U.S. anti-money laundering (AML) and sanctions laws. These laws are designed to protect U.S. national security and the integrity of the international financial system. Binance is the world's largest virtual currency exchange, responsible for approximately 60% of centralized virtual currency spot trading.

Today, Binance reached a settlement with FinCEN and OFAC for violations of the Bank Secrecy Act (BSA) and blatant violations of multiple sanctions programs. This includes failures to implement and report suspicious transaction prevention procedures, involving organizations such as Hamas's Al-Qassam Brigade, the Palestinian Islamic Jihad (PIJ), Al-Qaeda, and the Islamic State (ISIS) in Iraq and Syria, as well as matching transactions with ransomware attackers, money launderers, and other criminals, and matching transactions between U.S. users and sanctioned regions such as Iran, North Korea, Syria, and Crimea in Ukraine. Binance's failure to fulfill its AML and sanctions obligations allowed various illegal actors to trade freely on its platform. Today's settlement is part of a global agreement to resolve matters related to the U.S. Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC).

"Binance has ignored its legal obligations in pursuit of profit, and its willful neglect has allowed funds to flow through its platform to terrorists, cybercriminals, and child abusers," said Treasury Secretary Janet L. Yellen. "Today's historic fines and regulatory measures are intended to ensure compliance with U.S. laws and regulations and mark a milestone for the virtual currency industry. Any entity, regardless of location, that seeks to benefit from the U.S. financial system must also comply with the rules that protect us from terrorists, foreign adversaries, and criminal exploitation, or face consequences."

The FinCEN settlement agreement includes a $3.4 billion civil penalty, implements a five-year regulatory regime, and requires significant compliance commitments, including ensuring that Binance completely exits the U.S. market. The OFAC settlement agreement includes a $968 million penalty and requires Binance to comply with a series of stringent sanctions compliance obligations, including full cooperation with oversight by FinCEN. To ensure Binance's compliance with the terms of its settlement agreement, including not providing services to U.S. persons and ensuring the handling of illegal activities, the Treasury will retain access to Binance's books, records, and systems through regulatory agencies for five years. If Binance fails to meet these obligations, it may face substantial additional penalties, including a five-year suspended penalty that will be imposed by FinCEN if Binance fails to comply with the required compliance commitments and regulations.

Regulatory agencies will oversee remedial measures to address Binance's failures to comply with AML and sanctions obligations. Regulatory agencies will also conduct regular reviews and report their findings and recommendations to FinCEN, OFAC, and the Commodity Futures Trading Commission to ensure Binance's continued compliance with the terms of the settlement agreement.

Today's unprecedented actions underscore the Treasury's commitment to promoting compliance in the virtual currency industry, including the vigorous enforcement of AML and sanctions laws. The Treasury's authority to enforce these laws is broad, applicable to various misconduct, and can be applied to both U.S. and foreign individuals. Virtual currency exchanges and fintech companies, regardless of location, should ensure that they make a commitment to compliance at the highest levels and ensure that risk-based programs and controls are effectively integrated into their platforms and technologies from "day one."

The Treasury has worked closely with relevant components of the U.S. Department of Justice, including the Criminal Division's Money Laundering and Asset Recovery Section, the National Security Division's Counterintelligence and Export Control Section, and the U.S. Attorney's Office for the District of Columbia, as well as the Commodity Futures Trading Commission (CFTC).

FINCEN Enforcement Action

FinCEN's historic $3.4 billion settlement is the largest fine in the history of the U.S. Department of the Treasury and FinCEN.

Binance acknowledges that it operated as an unregistered money services business (MSB) while concealing its connections to the U.S. and retaining its most significant commercial customers in the U.S.

Binance admits that it willfully failed to establish, implement, and maintain an effective anti-money laundering program, including failing to conduct Know Your Customer (KYC) reviews on a large number of users. This means that Binance allowed various illegal actors to trade freely on its platform, undermining the integrity of the financial system. FinCEN's investigation revealed that Binance also failed to mitigate the risks associated with cryptocurrencies that enhance anonymity, allowing its users to obscure information about the origins and destinations of transactions.

As an MSB, Binance is obligated to report suspicious transactions to FinCEN through Suspicious Activity Reports (SARs). FinCEN's investigation found that Binance's former compliance officer told employees that the CEO's policy was not to report such activities, and Binance never submitted a single SAR to FinCEN. Due to its inadequate controls, including transactions involving terrorist organizations, ransomware, child sexual exploitation materials, fraud, and scams, Binance willfully failed to report over 100,000 suspicious transactions.

Terrorist Financing: Binance did not report transactions related to terrorist organizations, including Al-Qaeda, the Islamic State (ISIS), Hamas's Al-Qassam Brigade, and the Palestinian Islamic Jihad (PIJ).

• Ransomware: Despite being one of the exchanges with the highest ransomware revenues and being involved in millions of dollars in transactions related to at least 24 different ransomware attacks, Binance did not report these transactions.
• Child Sexual Abuse Materials: Binance never reported transactions related to websites that specialize in selling child sexual abuse materials, including Dark Scandals.
• Darknet Markets, Fraud, and Other Illegal Activities: Although Binance sent and received virtual asset proceeds from large-scale hacks, account takeovers, and transactions involving illegal drugs, counterfeit goods, and fraud-related products and services on darknet markets, Binance never reported any such transactions.
• To remedy the gap in reporting these and other types of illegal activities to law enforcement, Binance has agreed to conduct a retrospective review to identify and report to FinCEN suspicious transactions it processed but willfully did not report.

OFAC Enforcement Action

The historic fines in OFAC's (Office of Foreign Assets Control) actions reflect the severity of Binance's conduct, the high volume of its transactions, and the involvement of senior management. Between August 2017 and October 2022, Binance executed over 1.67 million virtual currency transactions on its Binance.com platform involving U.S. persons and sanctioned jurisdictions as well as blocked individuals.

As early as mid-2018, Binance was aware or should have been aware that facilitating such activities would lead to sanctions violations. However, Binance willfully undermined and did not effectively implement its own sanctions compliance controls. One method employed by Binance was to suggest that users utilize virtual private networks to bypass Binance's own geofencing controls, which are technical protocols that block access for users from the U.S. and sanctioned jurisdictions. In this way, Binance attempted to retain its U.S. user base and the substantial trading liquidity provided by U.S. users while maintaining its customers from sanctioned jurisdictions. Binance knew that, given the operation of its matching algorithms, maintaining two sets of users would inevitably lead to transactions executed between U.S. and sanctioned jurisdiction users, thereby violating sanctions. To sustain this activity, Binance executives, including its CEO, issued "surface" compliance guidance while knowingly allowing violations to continue.

Binance's settlement is the largest in OFAC's history, and if it substantively violates the compliance commitments described in the agreement, Binance may face billions of dollars in additional penalties.

IRS-CI Contribution

IRS-CI (Internal Revenue Service Criminal Investigation) special agents led the criminal investigation into Binance and its founders, which served as the basis for criminal charges and civil penalties. Evidence collected as part of the investigation indicates that the company and its founders did not establish an effective anti-money laundering program, that the company did not register as a money transmitter as required by federal law, and that the company willfully violated U.S. sanctions associated with the International Emergency Economic Powers Act.

IRS-CI is the criminal investigation arm of the Internal Revenue Service. For over 100 years, CI special agents have dedicated 100% of their time to investigating tax and financial crimes, and this skill set has now easily transferred to the digital realm as they track the flow of funds in increasingly complex cybercrimes.

The agency has two cybercrime units—one located in the Los Angeles field office and one in the Washington, D.C. field office—responsible for conducting cyber investigations. The Western Cybercrime Unit and the Cyber and Forensic Services Division at CI headquarters played a crucial role in the civil penalties announced on Tuesday.