Key Points
- A class action lawsuit has been filed against Binance, BAM Trading, and former CEO Changpeng Zhao, alleging violations of RICO and aiding in the conversion of stolen cryptocurrency.
- The plaintiffs claim Binance’s lack of KYC and AML policies enabled bad actors to launder stolen cryptocurrency, making it untraceable and causing financial harm to victims of hacks and thefts.
In a significant legal development, a class action lawsuit has been filed against cryptocurrency exchange giant Binance, its U.S. affiliate BAM Trading, and former CEO Changpeng Zhao (CZ) in the United States District Court for the Western District of Washington. The lawsuit, filed on August 16, 2024, alleges that the defendants operated a “Binance Crypto-Wash Enterprise” that facilitated the laundering of stolen cryptocurrency.
Allegations of RICO Violations and Conversion
Three crypto investors, representing a class of individuals whose cryptocurrency was stolen and subsequently transferred to Binance accounts, accuse the defendants of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act. They claim that Binance’s deliberate lack of Know Your Customer (KYC) and Anti-Money Laundering (AML) policies enabled bad actors to use the platform for laundering stolen digital assets.
The lawsuit alleges that Binance and CZ prioritized growth and profits over compliance with U.S. laws, allowing users to open accounts and conduct transactions with minimal identification requirements. According to the plaintiffs, this practice made Binance a “magnet and hub” for criminals seeking to launder stolen cryptocurrency.
Traceability and Blockchain Transparency
A key argument in the lawsuit is that cryptocurrency transactions typically leave a permanent, traceable record on the blockchain. The plaintiffs contend that Binance’s practices effectively removed this traceability, making it impossible for victims to recover their stolen assets. The complaint states, “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.”
Binance’s Recent Security Efforts
Interestingly, this lawsuit comes amid recent reports of Binance’s efforts to combat crypto-related fraud. According to a recent article by Token Times AI, Binance’s risk management system prevented over $2.4 billion in potential losses from scams and fraudulent activities between January and July 2024. The company also reportedly recovered or frozen over $73 million in user funds stolen from external parties during the same period, surpassing the $55 million secured throughout 2023.
Legal Implications and Industry Impact
Bill Hughes, senior counsel and director of global regulatory matters at an Ethereum development firm, commented on the lawsuit via a post on X. Hughes noted that the case could potentially put the efficacy of blockchain analytics and on-chain asset recovery “on trial” if it proceeds to discovery and pre-trial motions. He also pointed out that this lawsuit is a
“natural, predictable follow-on civil action that seeks to capitalize (or, depending on how you characterize these things, recover) on the government prosecutions and enforcement actions from earlier in the year.”
The lawsuit seeks treble damages under RICO, declaratory relief, and injunctive measures to prevent further alleged violations. It also demands the return of cryptocurrency taken from the plaintiffs and class members.
As the cryptocurrency industry continues to grapple with security challenges and regulatory scrutiny, this lawsuit against one of its most prominent players could have far-reaching implications for future exchange operations and user protection measures. It underscores the ongoing tension between the promise of blockchain transparency and the potential for exploitation in the absence of robust compliance measures.
