Three crypto investors have filed a new class action lawsuit against Binance and its former CEO, Changpeng Zhao (CZ). The investors claim that the exchange failed to prevent money laundering, which resulted in their inability to recover their misappropriated assets.
In an Aug. 16 class action complaint filed in the U.S. District Court for the Western District of Washington, Seattle, the plaintiffs claim that their crypto was stolen and that the thieves transferred the funds to Binance in order to “remove the connection between the ledger and their digital assets,” rendering them untraceable.
The plaintiffs contended that the most important feature of crypto transactions is the “permanent record of those transactions” on the blockchain, which renders them “permanently and accurately traceable.”
Binance is in trouble for breaking AML laws
Plaintiffs claim that Binance was a critical component of the money laundering process, a violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act. The class action suit alleges that:
Therefore, without a place to launder crypto, such as Binance.com, if a bad actor steals someone else’s crypto, there is a risk the authorities would eventually track them down by retracing their steps on the blockchain.
Lawsuit against Binance and CZ
According to the lawsuit, between August 2017 and October 2022, the crypto exchange facilitated millions of dollars in transactions between U.S. users and users in other comprehensively sanctioned jurisdictions, such as Syria, Cuba, and the Ukrainian regions of Crimea, Donetsk, and Luhansk.
The Defendants capitalized on the transactions that were initiated in violation of the IEEPA and several U.S. sanctions regimes.
In apparent violation of the following U.S. sanctions programs, Binance.com allowed at least 1,667,153 virtual currency transactions valued at approximately $706,068,127, as stipulated in the settlement agreement between Binance and the OFAC.
Bill Hughes, senior counsel and director of global regulatory matters at Consensys, an Ethereum development firm, expressed reservations regarding the suit’s ability to substantiate these allegations.
Hughes claimed in an Aug. 20 post to X that the new class action complaint is a “natural, predictable follow-on civil action” that aims to profit from government prosecutions.
Hughes added that the litigation places the crypto exchange in a “tough position” and that if it proceeds to trial, it could have substantial repercussions for the crypto industry.
Hughes says, “If this case goes far into discovery and even to dispositive pre-trial motions, then the efficacy of blockchain analytics itself and on-chain asset recovery will be on trial.”
He adds, “The things that Binance would be incentivized to say about tracing and recovery – [kind of] a tough position to be in, honestly, if you care anything about the industry.”
In November 2023, CZ pleaded guilty to violating U.S. money laundering laws and resigned as Binance’s CEO as part of a settlement with authorities. Binance agreed to pay $4.3 billion in penalties for “civil regulatory enforcement actions.”
