Binance and its former CEO, Changpeng “CZ” Zhao, are now facing a new class action lawsuit alleging money laundering, filed by three cryptocurrency investors.
The lawsuit, submitted to the U.S. District Court for the Western District of Washington in Seattle, accuses Binance of facilitating widespread money laundering, which allegedly made stolen cryptocurrencies untraceable.
This legal action is part of an ongoing series of regulatory and legal issues that have intensified scrutiny of Binance and its practices, further complicating matters for both the company and Zhao. Zhao is nearing the end of his prison term related to previous charges, adding to the complexity of the situation.
👀🚨👀🚨 @binance and @cz_binance were sued last Friday by class plaintiffs in Seattle federal court. An interesting class action brought by top class action lawyers alleging consumer harm as a result of Binance's money laundering. And the natural, predictable follow-on civil… pic.twitter.com/vMlFuUnzEr
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) August 20, 2024
Money Laundering Allegations Against Binance
The plaintiffs—Philip Martin, Natalie Tang, and Yatin Khanna—claim that their stolen cryptocurrencies were laundered through Binance. They allege that Binance knowingly allowed these stolen assets to be processed on its platform, violating the Racketeer Influenced and Corrupt Organizations (RICO) Act.
According to the lawsuit, although blockchain transactions should be traceable, Binance’s actions allegedly erased the digital footprints of the stolen assets, rendering recovery impossible. The plaintiffs argue that under Zhao’s leadership, Binance operated as an unlicensed money-transmitting business and ignored anti-money laundering (AML) requirements, turning the platform into a hub for laundering stolen funds.
Legal Perspectives and Industry Impact
The case has drawn skepticism from some quarters. Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensys, questioned the lawsuit’s ability to substantiate its claims. However, he noted that the case could place Binance in a challenging position, especially if it progresses to the discovery phase or trial. Hughes pointed out that a trial could potentially test the effectiveness of blockchain analytics and on-chain asset recovery, potentially influencing cryptocurrency regulation.
Wider Implications for Binance and the Crypto Industry
This lawsuit adds to Binance’s legal troubles. In November 2023, Zhao and Binance reached a plea deal with the U.S. Department of Justice (DOJ), where Zhao admitted to failing to maintain an effective AML program. Binance agreed to a $4 billion penalty, and Zhao was personally fined $50 million for facilitating transactions with users in sanctioned countries like Iran and North Korea.
Additionally, the SEC’s ongoing lawsuit against Binance accuses the exchange and Zhao of misleading regulators about market surveillance and inflating trading volumes. The federal court has allowed most of this case to proceed, further increasing legal pressure on Binance.
The latest class action lawsuit could have significant implications for Binance’s operations, particularly in the U.S. market, where regulatory scrutiny is intensifying. The outcome of this case may set a precedent for how blockchain analytics and on-chain asset recovery are handled legally, potentially reshaping the approach to cryptocurrency regulation globally.