Under the settlement, Binance will pay $3.4 billion to FinCEN and $968 million to OFAC, the largest fines in their respective histories. The IRS CI investigation led to the Justice Department’s action.
The U.S. Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the Internal Revenue Service Criminal Investigation (IRS CI), has taken an unprecedented action to hold Binance Holdings Ltd. and its affiliates (collectively, Binance) accountable for violations of U.S. anti-money laundering (AML) and sanctions laws. These laws are designed to protect U.S. national security and the integrity of the international financial system. Binance is the world’s largest cryptocurrency exchange, responsible for approximately 60% of centralized cryptocurrency spot trading.
Today, Binance settled with FinCEN and OFAC for violations of the Bank Secrecy Act (BSA) and apparent violations of multiple sanctions programs. This included failures to implement procedures for preventing and reporting suspicious transactions, including by groups such as Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad (PIJ), al-Qaeda, and the Islamic State of Iraq and Syria (ISIS), as well as matching transactions for ransomware attackers, money launderers, and other criminals, and between U.S. users and sanctioned territories such as Iran, North Korea, Syria, and the Crimea region of Ukraine. Binance’s failure to comply with its AML and sanctions obligations enabled a variety of illicit actors to freely trade on its platform. Today’s settlement is part of a global agreement with Binance to resolve matters related to the U.S. Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC).
“Binance ignored its legal obligations in pursuit of profits, and its willful failure to do so allowed funds to flow through its platform to terrorists, cybercriminals, and child abusers,” said Treasury Secretary Janet L. Yellen. “Today’s historic fine and regulatory action, designed to ensure compliance with U.S. laws and regulations, marks a milestone for the virtual currency industry. Any institution, regardless of location, that seeks to benefit from the U.S. financial system must also follow the rules that protect us from terrorists, foreign adversaries, and criminals, or face consequences.”
FinCEN's settlement provides for a $3.4 billion civil penalty, imposes five years of surveillance, and requires significant compliance commitments, including ensuring Binance's complete exit from the U.S. market. OFAC's settlement provides for a $968 million penalty and requires Binance to comply with a number of stringent sanctions compliance obligations, including full cooperation with surveillance overseen by FinCEN. To ensure that Binance complies with the terms of its settlement, including not providing services to U.S. persons and ensuring that illegal activity is addressed, the Treasury Department, through the regulator, will retain access to Binance's books, records, and systems for five years. If Binance fails to meet these obligations, it could face significant additional penalties, including a five-year suspension penalty, which would be collected by FinCEN if Binance fails to comply with the required compliance commitments and surveillance.
The regulator will oversee remedial measures to address Binance’s failure to comply with its anti-money laundering and sanctions obligations. The regulator will also regularly review and report its findings and recommendations to FinCEN, OFAC and the Commodity Futures Trading Commission to ensure Binance’s ongoing compliance with the terms of the settlement agreement.
Today’s unprecedented action underscores the Treasury Department’s commitment to promoting compliance in the virtual currency industry, including aggressive enforcement of anti-money laundering and sanctions laws. Treasury’s authority to enforce these laws is broad, applies to a wide range of misconduct, and can apply to both U.S. and foreign persons. Virtual currency exchanges and fintech companies, regardless of where they are located, should ensure a commitment to compliance at the highest level, just like any other financial institution, and that risk-based programs and controls are effectively integrated into their platforms and technologies from “day one.”
The Treasury Department worked closely with relevant components of the U.S. Department of Justice, including the Criminal Division’s Money Laundering and Asset Recovery Section, the National Security Division’s Counterintelligence and Export Control Section, and the U.S. Attorney’s Office for the Western District of Washington, as well as the Commodity Futures Trading Commission (CFTC).
FINCEN Enforcement Actions
FinCEN’s historic $3.4 billion settlement is the largest penalty in the history of the U.S. Treasury and FinCEN.
Binance admitted that it intentionally operated as an unregistered money services business (MSB) while concealing its U.S. ties and retaining its most significant U.S.-based business clients.
Binance admitted that it willfully failed to establish, implement, and maintain an effective anti-money laundering program, including failing to conduct Know Your Customer (KYC) screening on a large number of users. This meant that Binance allowed a variety of illegal actors to trade freely on its platform, undermining the integrity of the financial system. FinCEN's investigation revealed that Binance also failed to mitigate the risks of cryptocurrencies that enhance anonymity, enabling its users to conceal information about the origin and destination of transactions.
As an MSB, Binance is obligated to report suspicious transactions to FinCEN through Suspicious Activity Reports (SARs). FinCEN's investigation found that Binance's former compliance officer told employees that it was the CEO's policy not to report such activity and that Binance had never filed a SAR with FinCEN. Due to its inadequate controls, including transactions involving terrorist organizations, ransomware, child sexual exploitation materials, fraud, and scams, Binance willfully failed to report more than 100,000 suspicious transactions.
Terrorist Financing: Binance failed to report transactions to FinCEN related to terrorist groups, including al-Qaeda, the Islamic State of Iraq and Syria (ISIS), Hamas’ Al-Qassam Brigades, and the Palestinian Islamic Jihad (PIJ).
Ransomware: Despite being one of the exchanges with the highest ransomware earnings and having been involved in millions of dollars in transactions related to at least 24 different ransomware attacks, Binance did not report these transactions.
Child Sexual Abuse Materials: Binance has never reported transactions with websites dedicated to selling child sexual abuse information, including Dark Scandals.
Darknet Markets, Scams, and Other Illegal Activity: Despite sending and receiving virtual asset proceeds from large-scale hacks, account takeovers, and darknet markets that trade in illegal drugs, counterfeit goods, and fraud-related goods and services, Binance has never reported any such transactions.
To fill the gap in reporting these and other types of illegal activity to law enforcement, Binance has agreed to retroactively record and identify and report to FinCEN suspicious transactions that it processed but intentionally failed to report.
OFAC Enforcement Actions
The historic fine in the OFAC (U.S. Treasury Office of Foreign Assets Control) action reflects the severity of Binance's conduct, the high volume of its transactions, and the involvement of senior management. Between August 2017 and October 2022, Binance executed more than 1.67 million virtual currency transactions on its Binance.com platform involving U.S. persons and sanctioned jurisdictions and blocked individuals.
As early as mid-2018, Binance knew or should have known that facilitating this activity would result in sanctions violations. However, Binance deliberately undermined and failed to effectively implement its own sanctions compliance controls. One method Binance employed was to recommend that users use virtual private networks that could circumvent Binance’s own geofencing controls, i.e., technical protocols that block access by users from the United States and sanctioned jurisdictions. In this way, Binance attempted to retain its U.S. user base and the substantial trading liquidity provided by U.S. users, while maintaining its customers from sanctioned jurisdictions. Binance knew that, given the operation of its matching algorithm, maintaining two sets of users would inevitably result in trades being executed between users in the United States and sanctioned jurisdictions, thereby violating sanctions. To sustain this activity, Binance executives, including its CEO, issued guidance that was “ostensibly” compliant while knowingly allowing the violating activity to continue.
Binance’s settlement is the largest in OFAC’s history, and Binance could face billions of dollars in additional penalties if it materially violates the compliance commitments described in the agreement.
IRS-CI Contribution
Special Agents of IRS-CI (U.S. Internal Revenue Service Criminal Investigation) led a criminal investigation into Binance and its founders, which formed the basis for the criminal charges and civil penalties. Evidence collected as part of the investigation revealed that the company and its founders did not have an effective anti-money laundering program in place, that the company was not registered as a money transmitter as required by federal law, and that the company willfully violated U.S. sanctions associated with the International Emergency Economic Powers Act.
IRS-CI is the criminal investigative arm of the Internal Revenue Service. For more than 100 years, CI’s special agents have spent 100 percent of their time investigating tax and financial crimes, a skill set that now easily transfers to the digital realm, where they track the flow of money for increasingly sophisticated cybercrimes.
The agency has two cyber crime units — a Western Cyber Crime Unit based in Los Angeles and an Eastern Cyber Crime Unit based in Washington, D.C. — responsible for conducting cyber investigations. The Western Cyber Crime Unit, along with the Cyber and Forensic Services Division at CI headquarters, played a critical role in the civil penalty announced on Tuesday.