CZ and Binance face new lawsuit for alleged laundering of stolen crypto

One legal expert says if the class action lawsuit progresses, it could put the "efficacy of blockchain analytics itself" on trial.

Binance and its former CEO Changpeng Zhao (CZ) are facing a new class action lawsuit from three crypto investors who say they couldn’t recover their stolen assets because the exchange failed to prevent money laundering.

In an Aug. 16 class action complaint filed in the U.S. District Court for the Western District of Washington, Seattle, the plaintiffs allege their crypto was stolen, and those funds were sent to Binance by the thieves to “remove the connection between the ledger and their digital assets,” making them untraceable. 

The plaintiffs argued a key attribute of crypto transactions is “a permanent record of those transactions” on the blockchain, which makes them “permanently and accurately traceable.” 

“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,” the class action suit alleges. 

Plaintiffs say Binance was an essential part of the money laundering process, which violates the Racketeer Influenced and Corrupt Organizations (RICO) Act. 

Binance in a tough spot over class action 

Bill Hughes, senior counsel and director of global regulatory matters at Ethereum development firm Consensys said he’s “dubious” about whether the suit will be able to prove these allegations. 

In an Aug. 20 post to X, Hughes said the new class action suit was a “natural, predictable follow-on civil action” that seeks to capitalize on government prosecutions.

However, Hughes also said the lawsuit puts Binance in a “tough position” and said it could have significant ramifications for the crypto industry if it ever went to trial. 

“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 said.

“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,” Hughes added.

“The efficacy of blockchain analytics itself and on-chain asset recovery will be on trial.”

Related: Binance tax evasion verdict set for October

CZ pleaded guilty in November 2023 to violating U.S. money laundering laws and resigned as Binance CEO as part of a settlement with authorities. Binance agreed to pay $4.3 billion in fines for “civil regulatory enforcement actions.” 

In April, a federal judge sentenced CZ to four months in prison, shorter than the three years federal prosecutors requested. He started serving his sentence in June and will be released in September.

The Securities and Exchange Commission (SEC) also filed a suit against Binance in June 2023, accusing the exchange and CZ of being misleading about its market surveillance controls and artificially inflating its trading volumes. On June 28, a court gave the green light for most of the case to proceed.

Cointelegraph contacted Binance for comment but did not receive a response by the time of publication. 

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