How Binance’s ‘extensive web of deception’ could lead to DOJ charges against the world’s largest crypto exchange—and its enigmatic founder

“We allege that entities Zhao and Binance have engaged in a wide web of deception, conflict of interest, lack of disclosure, and calculated evasion of the law,” SEC Chairman Gary Gensler said in an accompanying report. statement.

A week after the SEC’s complaint, and more than two months after similar accusations from the CFTC, speculation is growing that the Justice Department may end Boiling state for a long time Against Binance and bring charges any day. Unlike the two regulators, the DOJ charges are likely to be criminal rather than civil and focus on money laundering across a range of entities under the Binance umbrella.

With the SEC focusing on Zhao’s control of Binance in its complaint, legal and money laundering experts say the founder’s exposure to dozens of companies linked to the exchange could expose him to accountability as the Justice Department considers criminal charges.

“It made it complicated and difficult for regulators to track,” said Kevin O’Brien, a former assistant US attorney for the Eastern District of New York and current partner at Ford O’Brien Landy. “If they are not, in fact, independent companies, then that fuels (the allegation) money laundering — it creates transactions that line its own pocket.”

Very little distinction

Two complaints from the Securities and Exchange Commission and the Commodity Futures Trading Commission, and hundreds of pages of Accompanying exhibitsfocused on the billions of dollars flowing between various Binance companies and accounts, many of them through US banks including Silvergate and Signature.

Zhao sat at the front of many of these transactions through the various entities he owns, including trading companies called Merit Peak and Sigma Chain, as well as a Seychelles company called Key Vision Development, which detained customer deposits. The SEC also alleges that billions of dollars in customer funds were mixed up in an account owned by Merit Peak.

In a review of the Binance entities involved with it luckBlockchain analytics firm Inca Digital found 40 people linked to Zhao, working with him as founder, director, owner or significant shareholder in several of them.

“our Intelligence Adam Zarazinsky, CEO of Inca and former legal advisor to the Air Force, explains that there is very little difference between Binance and Changpeng Zhao. “CZ often uses his personal name and account to circumvent laws and regulations in jurisdictions where Binance faces scrutiny.”

Zarazinsky pointed to the example of Key Vision, where Zhao was a Signature bank account holder. In an exhibition accompanying the SEC’s complaint, an agency accountant lies down More than $11 billion was transferred from Key Vision to Merit Peak, another Zhao-owned entity, in 2021.

The SEC does not include an explanation of the mysterious transaction chain, nor does Zhao control over dozens of entities in the Binance network. These are the kinds of red flags investigators will look out for, says Susan Lynch, a money laundering expert and professor of economic crime at Utica College.

“It seemed very tactical – millions, sometimes billions, who in a couple of months moved into these offshore accounts that are in different parts of the world, who still have accounts in these US-based banks,” she said. luck.

Binance has denied any wrongdoing in the funds flows, as well as allegations from the SEC that it mishandled customer funds.

A company spokesperson said in a statement shared with Facebook luck. Binance has not been charged with money laundering by the SEC.

Enter the Department of Justice

With the SEC focusing more on securities violations than money laundering, Lynch said the agency is paving the way through forensic accountability and monitoring of the Binance accounts it has access to. She said the reach of international financial networks, as well as the multiple accounts and speed of deposits and withdrawals, raises red flags that the Justice Department is likely to consider.

“This is the basis for what I believe to be a criminal indictment,” she added.

As O’Brien points out, the challenge with making the money laundering charges stick is that the transfers have to add to an underlying crime. For example, if someone goes to buy a car with money obtained from selling drugs, the car dealer could end up in jail. For Binance, O’Brien said, this crime could consist in improperly channeling customer funds to a business entity and then sending those proceeds to various banks around the world.

For now, the question remains when — and if — the DOJ decides to press charges, and whether Zhao will be included alongside his exchange.

Even with Chow likely to live in non-Muslim countries, Lynch said it would be difficult for him to avoid US government access, though his extensive network of entities could allow continued access to capital.

“What he’s done with all that money, and how he’s dispersed it across the world,” she said, “gives him access points in a variety of countries.” luck. “It is very ugly, such cases.”