Changpeng Zhao is about as big as you can get in crypto. He’s the CEO of Binance, the world’s largest exchange, which processes about half the crypto market’s trades. He’s personally worth about $17 billion. If this were Game of Thrones, he would be the FTX Slayer, Father of Tokens, for his role in instigating a run on Sam Bankman-Fried’s rival exchange, collapsing his empire, and setting off a wave of bankruptcies and near-bankruptcies among other big players in the industry. Still, Zhao — known as CZ to his legion of fans — is an elusive figure: an executive whose whereabouts are generally secret, running a company with no real headquarters, declaring victory over his rival even as questions remained about the stability of his own shop. But those concerns about Binance’s viability just got a little more interesting: it turns out that now he and his company are under criminal investigation for money laundering by the Justice Department for allegedly processing transactions for criminal enterprises and transmitting money without a license.
Reuters broke the story that the DOJ is split on whether they’re going to bring charges against the five-year old company after investigating it for four years. Without directly saying so, the story implies that, although there’s evidence the exchange allegedly laundered money, the company’s practices of not putting anything in emails and using encrypted messaging services that automatically delete messages is making it harder to put together a case. (A Binance representative told Reuters they haven’t done anything wrong, but also declined to comment on the specifics of the investigation). At one point around late 2020, the DOJ requested records about its document-destruction policy, which set off a “panicked phone call” inside Binance. “The caller told the advisor that Binance was struggling to respond to the DOJ because many of the records relevant to the Department’s request had already been erased due to Zhao’s secrecy rules,” according to the report. This document-destruction policy may also have extended to Binance’s US arm, which is supposedly independent. (There have been so many CEO resignations in recent years that there have been times when it’s not really clear who is actually in charge at the US company.)
The dilemma here would be a familiar one in the white collar crime world. In order for the DOJ to prosecute, it needs evidence — enough to feel reasonably secure that it could win a case. This gets increasingly complicated when it comes to a fraud charge, since the government needs to prove intent — in other words, that the person doing the alleged didn’t accidentally defraud someone.
According to Reuters, some inside the DOJ believe they have enough to bring charges, but to indict a company that is so large and important to the crypto market, it needs to be approved by the Seattle US Attorney’s office, as well as chiefs overseeing money laundering and cryptocurrencies. (It’s not clear who among the key players, if any, has signed off on bringing an indictment). Binance is also arguing that a criminal charge against the company, and presumably against CZ or other executives, would have a ruinous effect on the broader crypto market, though it’s not clear if these arguments were made before or after FTX declared bankruptcy.
There’s no easy solution to this. It should be perfectly obvious to anyone that you shouldn’t be able to get away with committing crimes just by pointing to an aggressive record-destruction policy and shrugging your shoulders. (Wall Street banks, for instance, are required to retain chats and emails of all their employees, which made the ubiquitous Bloomberg terminal a wellspring of evidence for various market-rigging cases a few years ago). But what do you do with a company like Binance, where there is no clear center of gravity? Zhao — who was born in China, has Canadian citizenship, and has lived in Singapore and Beijing in recent years — has such an aversion to coming to the US that it prompted Bankman-Fried in October to tweet a now-deleted joke about how he’s a wanted man. The DOJ also doesn’t want to be seen as destroying an industry — an accusation that has haunted prosecutors after the bankruptcy of Arthur Anderson for aiding Enron’s fraud. (This was never really the case: after Arthur Anderson collapsed, the other big firms absorbed most of those laid off and the industry hummed along fine). Then again, the Justice Department never brought any serious charges against Wall Street after the 2008 financial crisis, and look at how well that worked out for everybody.
