Binance, the world’s leading cryptocurrency exchange, and its former CEO, Changpeng “CZ” Zhao, have been hit with a new class action lawsuit, accusing them of facilitating widespread money laundering. The lawsuit, filed by three cryptocurrency investors in the U.S. District Court for the Western District of Washington in Seattle, alleges that Binance enabled stolen cryptocurrencies to be laundered on its platform, making the digital assets untraceable.
Investors Accuse Binance of Enabling Crypto Laundering
The plaintiffs—Philip Martin, Natalie Tang, and Yatin Khanna—claim that their stolen cryptocurrencies were funneled through Binance, which they allege knowingly allowed these illicit transactions to occur. The lawsuit contends that Binance’s actions violated the Racketeer Influenced and Corrupt Organizations (RICO) Act, a federal law designed to combat organized crime.
According to the plaintiffs, the immutable nature of blockchain technology should have allowed the stolen assets to be traced and recovered. However, they argue that Binance’s involvement in laundering these assets effectively erased their digital footprints, rendering them unrecoverable. The lawsuit also accuses Binance of operating as an unlicensed money-transmitting business, with Zhao allegedly ignoring anti-money laundering (AML) requirements during his tenure as CEO. This negligence, the plaintiffs claim, turned Binance into a hub for laundering stolen cryptocurrencies.
Legal Experts Weigh In on the Case
The lawsuit has garnered significant attention, but it is not without its skeptics. Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensys, expressed doubts about the plaintiffs’ ability to prove their allegations. However, Hughes acknowledged that if the case advances to the discovery phase or pre-trial motions, it could place Binance in a vulnerable position. He also noted that the trial could put blockchain analytics and on-chain asset recovery practices under scrutiny, potentially reshaping the regulatory landscape for the cryptocurrency industry.
Broader Implications for Binance and the Cryptocurrency Sector
This new legal challenge is the latest in a series of regulatory actions against Binance and its founder. In November 2023, Zhao and Binance reached a plea agreement with the U.S. Department of Justice (DOJ), admitting to failures in maintaining 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 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.
This class action lawsuit comes at a particularly challenging time for Binance, which is already grappling with the fallout from previous legal battles. Last year, the U.S. Securities and Exchange Commission (SEC) also filed a lawsuit against Binance, accusing the exchange and Zhao of misleading the agency about its market surveillance controls and inflating trading volumes. The federal court has allowed most of this case to proceed, intensifying the legal pressure on the company.
The outcome of this latest lawsuit could have far-reaching implications not only for Binance and Zhao but also for the broader cryptocurrency industry. If the case proceeds, it could set a legal precedent for how blockchain analytics and on-chain asset recovery are treated in court, potentially influencing future regulatory actions and compliance requirements across the sector.
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