Binance and its former CEO, Changpeng Zhao (CZ), are facing a fresh class action lawsuit filed by three crypto investors who claim the exchange failed to prevent money laundering, leading to the loss of their misappropriated digital assets.
On August 16, the plaintiffs filed the complaint in the U.S. District Court for the Western District of Washington, Seattle. They allege that their stolen crypto assets were transferred to the crypto exchange by the thieves to “remove the connection between the ledger and their digital assets,” making them untraceable. The plaintiffs emphasized that one of the key features of crypto transactions is the “permanent record” on the blockchain, which allows transactions to be “permanently and accurately traceable.”
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Accusations of AML Violations
The lawsuit accuses the Crypto firm of being a crucial part of the money laundering process, in violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act. The plaintiffs argue that without platforms like Binance, bad actors would face greater risk of being tracked down by authorities using blockchain records.
Alleged Sanctions Violations
The lawsuit further alleges that between August 2017 and October 2022, Binance facilitated millions of dollars in transactions involving U.S. users and entities in sanctioned regions, including Syria, Cuba, and parts of Ukraine. According to the complaint, Binance allowed over 1.6 million virtual currency transactions, valued at approximately $706 million, in violation of U.S. sanctions and the International Emergency Economic Powers Act (IEEPA).
Legal and Industry Implications
Bill Hughes, senior counsel at Consensys, an Ethereum development firm, expressed skepticism about the lawsuit’s ability to prove these allegations. In an August 20 post, Hughes described the class action as a “predictable” attempt to profit from ongoing government prosecutions against the company. He noted that the litigation could place the firm in a difficult position, with potential consequences for the broader crypto industry if the case proceeds to trial.
CZ’s Legal Troubles and Binance’s Penalties
In November 2023, Changpeng Zhao pleaded guilty to violating U.S. money laundering laws and stepped down as Binance’s CEO as part of a settlement with U.S. authorities. Binance agreed to pay $4.3 billion in penalties to resolve “civil regulatory enforcement actions.”
The outcome of this new lawsuit could have significant implications for the Crypto Exchange and the crypto industry, particularly in terms of how blockchain analytics and on-chain asset recovery are viewed and utilized in legal contexts.
