CZ faces criminal charges in the US after being fined $4 billion. Will Binance accept it?

The U.S. Department of Justice is seeking a fine of more than $4 billion from Binance Holding as part of a proposed settlement of its years-long investigation into the world’s largest cryptocurrency exchange.

The talks between the Justice Department and Binance include a deal in which its founder, Changpeng Zhao, could face criminal charges in the United States to resolve an investigation into alleged money laundering, bank fraud and sanctions violations, according to people familiar with the matter.

Zhao Changpeng, also known as "CZ," lives in the United Arab Emirates. The country does not have an extradition treaty with the United States, but that did not prevent Zhao Changpeng from coming to the United States voluntarily.

Binance did not respond to multiple emails and phone calls seeking comment. The Justice Department declined to comment.

An announcement could come as soon as the end of this month, but the situation remains fluid, according to the people, who asked not to be identified discussing confidential matters.

Matt Walsh, founding partner of crypto venture capital firm Castle Island Ventures, said: "A settlement that includes monitoring provisions may be a compromise that protects investors and allows Binance to choose to move towards a more institutionalized and compliant future."

The exact timing and structure of the proposed resolution, as well as the exact costs, are unclear. However, Binance could have to pay more than $4 billion, which would be one of the largest fines ever in a cryptocurrency criminal case.

The investigation was led by the Criminal Division’s Money Laundering and Asset Recovery Section, the National Security Division and the U.S. Attorney’s Office in Seattle.

The Art of Balancing

The agreement aims to strike a balance that would allow Binance to continue operating rather than risk a collapse that would have a negative impact on markets and cryptocurrency holders, three people familiar with the matter said.

Another person said Binance has been seeking to minimize its risks in any settlement, including pushing for a deferred prosecution agreement.

If Binance and the DOJ agree on a deferred prosecution agreement, the DOJ will bring criminal charges against the company. But the U.S. will not prosecute as long as the company meets specified conditions, which typically include paying a large fine and agreeing to detail the facts of its misconduct. A process will be established to monitor Binance's compliance.

Regarding possible sanctions violations, the Justice Department has been investigating Binance for allegedly helping evade U.S. sanctions on Iran and Russia, one of the people said. Binance has also come under scrutiny for whether it allowed transactions that provided funding to Hamas.

FTX Case

The case is one of the largest investigations of a cryptocurrency company ever launched by the Justice Department. The settlement would be another historic resolution following the collapse of cryptocurrency exchange FTX, which led to the conviction of its founder, Sam Bankman-Fried, on fraud and conspiracy charges earlier this month.

Although Justice Department officials have been pushing for broad leadership changes at Binance, it is unclear whether other Binance executives besides Zhao will face charges in the case.

Binance faces legal and regulatory actions from other U.S. agencies, as well as increased scrutiny from U.S. lawmakers.

In June, the U.S. SEC filed a lawsuit accusing Binance and Zhao Changpeng of mishandling customer funds, misleading investors and regulators, and violating securities rules.

Binance US

The lawsuit effectively weakens Binance.US. Binance.US CEO Brian Shroder left the company in September as the struggling cryptocurrency platform was undergoing another round of layoffs. The company cut about a third of its staff, or more than 100 positions. After Binance.US lost bank support and suspended U.S. dollar deposits, the exchange's trading volume has slowed to a negligible level.

The U.S. Commodity Futures Trading Commission (CFTC) claimed in March that Binance and Zhao Changpeng frequently violated U.S. derivatives rules as Binance grew into the world’s largest digital asset trading platform. The CFTC said at the time that Binance should have registered with the agency several years ago but continued to violate CFTC regulations.

Binance has disputed the lawsuits and said it has actively cooperated with the regulator's investigation and is disappointed with the enforcement action. Zhao Changpeng said in a statement in March that the CFTC's complaint "appears to contain an incomplete statement of facts" and that Binance disagrees with the characterization of many of the issues. Binance called the SEC's filing an attempt by the agency to "regulate using blunt weapons such as enforcement and litigation rather than the thoughtful, nuanced approach that this dynamic and complex technology requires."