Binance and CZ Hit With Class Action Lawsuit for Failing to Prevent Money Laundering on Platform
Three cryptocurrency investors sued Binance and CZ Zhao for allegedly failing to prevent money laundering. | Credit: David Ryder/Getty Images
Key Takeaways
- Some investors are suing Binance.
- They claim hackers funneled stolen crypto through Binance.
- The lawsuit could expose limitations of blockchain tracing stolen crypto, potentially impacting Binance.
Three cryptocurrency investors have initiated a new class action lawsuit against Binance and its former CEO, Changpeng ‘CZ’ Zhao.
The lawsuit, filed on Aug. 16 in the US District Court for the Western District of Washington in Seattle, accuses the exchange of failing to implement adequate measures to prevent money laundering.
Crypto Investors Sue Binance for Allegedly Enabling Money Laundering
The three main plaintiffs in the case assert that the hackers stole their cryptocurrencies and then transferred them to Binance in an effort to “disconnect the ledger from their digital assets.”
This made the stolen cryptocurrencies difficult to trace. The lawsuit contends that Binance played a role in facilitating this money laundering, which they argue breaches the Racketeer Influenced and Corrupt Organizations (RICO) Act.
According to the class action lawsuit:
“Without a place to launder crypto, such as Binance.com, if a bad actor steals someone else’s crypto, there is a risk that the authorities would eventually track them down by retracing their steps on the blockchain.”
Binance Case To Shine Light on Challenges of Recovering Stolen Crypto
Bill Hughes, Senior Counsel and Director of Global Regulatory Matters at Consensys pointed out on social media that the new class action lawsuit is a “natural, predictable follow-on civil action.”
He suggested it aims to leverage (or recover from, depending on perspective) the outcomes of earlier government prosecutions and enforcement actions.
Hughes noted that these attorneys have a strong background, having previously sued large entities like Facebook and Wells Fargo.
If the case progresses to extensive discovery or reaches significant pre-trial stages — though Hughes suspects it might not, as a settlement could occur — it would put the spotlight on the effectiveness of blockchain analytics and asset recovery on trial, reflecting the challenging position for Binance and the broader industry.
Binance Hit With Lawsuit Amid Ongoing Regulatory Scrutiny
The lawsuit builds on Binance’s recent settlement with the US Department of Justice (DOJ).
In 2023, the exchange agreed to pay the DOJ over $4.3 billion in fines. It also resolved claims with the US commodities regulator, paying an additional $2.85 billion. As part of the settlement, Binance admitted guilt to US anti-money laundering (AML) violations and sanctions laws.
Additionally, Changpeng ‘CZ’ Zhao, the founder of Binance, resigned as CEO and entered a guilty plea for one violation of anti-money laundering regulations. He received a four-month prison sentence.
Binance CEO CZ Clears the Air on $250M Loan Controversy and Seeks Dismissal of SEC Lawsuit
CZ Sentencing: When Will Binance Founder Changpeng Zhao Discover His Fate?
