The world’s largest cryptocurrency exchange and its former CEO Changpeng “CZ” Zhao are facing a new legal battle.
On August 16, three cryptocurrency investors filed a class-action lawsuit in the US District Court for the Western District of Washington, Seattle.
They claim that Binance failed to prevent money laundering activities that ultimately led to their crypto assets being stolen.
According to the lawsuit, the plaintiffs allege that their digital assets were taken by thieves who then used Binance to “remove the connection between the ledger and their digital assets”, making the stolen funds untraceable.
The investors argue that Binance, under Zhao’s leadership, allowed criminals to exploit its platform to launder money, making it impossible for victims to recover their assets.
The complaint highlights that Binance operated as an “unlicensed money-transmitting business”, deliberately bypassing US regulations that are designed to prevent money laundering.
It is further alleged that Zhao and Binance focused on rapidly expanding their business and ignored critical anti-money laundering (AML) requirements to gain an edge in the competitive cryptocurrency market.
Accused of violating RICO Act
One of the key points raised by the plaintiffs is the immutable nature of blockchain transactions. They argue that “a permanent record of those transactions” exists on the blockchain, which makes them “permanently and accurately traceable”.
The lawsuit suggests that without platforms like Binance to launder crypto, stolen assets could eventually be tracked down by authorities by following the transaction history on the blockchain.
The investors claim that Binance’s failure to implement strong AML and Know Your Customer (KYC) protocols directly contributed to the exchange becoming a hub for laundering stolen cryptocurrencies.
This, they argue, is in violation of the Racketeer Influenced and Corrupt Organisations (RICO) Act, a federal law often used to combat organised crime.
The lawsuit asserts that “Binance was an essential part of the money laundering process”, thereby playing a crucial role in facilitating these illegal activities.
Further, the complaint accuses Zhao of prioritising profits over legal compliance. According to the plaintiffs, Zhao created an environment where US users were encouraged to sidestep the platform’s minimal compliance checks.
This made Binance an attractive option for criminals looking to launder money through the exchange, stated the lawsuit.
Legal troubles
The new lawsuit adds to the mounting legal challenges facing Binance and Zhao. It is just one in a series of legal actions Binance and Zhao have faced.
In November 2023, Zhao pleaded guilty to violating US money laundering laws and stepped down as CEO of Binance as part of a settlement with authorities.
As part of the agreement, Binance consented to pay $4.3 billion in fines for what were described as “civil regulatory enforcement actions”.
Zhao was also sentenced to four months in prison, which he began serving in June 2024, and is expected to be released in September.
In addition to this, Zhao was personally fined $50 million for his role in facilitating transactions with users in sanctioned countries like Iran and North Korea.
The US Securities and Exchange Commission (SEC) has also been pursuing legal action against Binance.
The senior counsel and director of global regulatory matters at Consensys, Bill Hughes, expressed his scepticism about the lawsuit’s potential success.
In an X post on 20 August, Hughes said he was “dubious” about whether the plaintiffs would be able to prove their allegations.
However, he acknowledged the broader implications of the case, noting that it puts Binance in a “tough position”.
Hughes elaborated, stating, “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”.
He added that Binance might have to take positions in court that could be challenging for the cryptocurrency industry as a whole.
