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Journalist
Hassan Shittu
Journalist
Hassan Shittu
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Binance, the world’s largest cryptocurrency exchange, and its former CEO, Changpeng “CZ” Zhao, are facing a new money laundering class action lawsuit filed by three cryptocurrency investors.
The lawsuit, lodged in the U.S. District Court for the Western District of Washington, Seattle, accuses Binance of enabling widespread money laundering that allowed stolen cryptocurrencies to become untraceable.
This legal action follows a series of regulatory and legal challenges that have intensified scrutiny of Binance and its practices, also, for CZ, the former CEO who is about to complete his prison term following his last charges, which he was found guilty of, further complicating things for both the company and CZ.
Binance Money Laundering Allegations
The plaintiffs—Philip Martin, Natalie Tang, and Yatin Khanna—allege that the thieves stole their cryptocurrencies and subsequently funneled them through Binance.
The lawsuit claims that Binance knowingly allowed these stolen assets to be laundered on its platform, thereby violating the Racketeer Influenced and Corrupt Organizations (RICO) Act.
According to the suit, the permanent record of blockchain transactions should have made it possible to trace and recover the stolen assets.
However, the plaintiffs argue that Binance’s involvement in laundering these assets effectively erased their digital footprints, making recovery impossible.
The lawsuit further contends that Binance, under Zhao’s leadership, operated as an unlicensed money-transmitting business, willfully ignoring anti-money laundering (AML) requirements.
The plaintiffs claim this negligence facilitated illicit activities, turning Binance into a hub for laundering stolen cryptocurrencies.
The legal challenge is not without its skeptics. Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensys expressed doubts about the lawsuit’s ability to prove these allegations.
However, he acknowledged that the case places Binance in a precarious position, particularly if it progresses to the discovery phase or pre-trial motions.
Hughes pointed out that if the case goes to trial, it could put the efficacy of blockchain analytics and on-chain asset recovery on trial, potentially reshaping the entire approach to cryptocurrency regulations.
Potential Influence on the Global Cryptocurrency Sector
This lawsuit is the latest in a series of regulatory actions against Binance and its founder, CZ.
In November 2023, Zhao and Binance reached a plea agreement with the U.S. Department of Justice (DOJ), in which Zhao admitted to failing to maintain an effective AML program.
As part of the settlement, Binance agreed to pay over $4 billion in penalties, and Zhao stepped down as CEO.
Additionally, Zhao was personally fined $50 million for his role in the company’s violations, which included facilitating transactions with users in sanctioned jurisdictions such as Iran and North Korea.
The new class action lawsuit comes at a time when Binance is already grappling with the fallout from its previous legal battles.
Earlier last year, the SEC also filed a lawsuit against Binance, accusing the exchange and Zhao of misleading the SEC about its market surveillance controls and artificially inflating its trading volumes.
The federal court has allowed most of this case to proceed, with intensified legal pressure on Binance.
The mounting legal challenges will likely have significant implications for Binance’s operations, particularly in the U.S. market, where regulatory bodies increasingly focus on enforcing compliance in the cryptocurrency sector.
The implications of this latest lawsuit extend beyond Binance and Zhao. If the case proceeds, it could have far-reaching consequences for the entire cryptocurrency industry.
As Hughes clearly states, the outcome of this case could set a precedent for how blockchain analytics and on-chain asset recovery are treated in legal contexts.
