In the aftermath of Binance’s settlement in 2023 with US authorities and the subsequent resignation and conviction of its former CEO Changpeng Zhao (CZ), the regulatory landscape appeared to have quieted down for the exchange and its key figure. 

However, recent revelations by a former Department of Justice (DOJ) official-turned-lawyer for blockchain company ConsenSys have thrust Binance and CZ into the legal spotlight.

Binance’s Alleged ‘Crypto-Wash Enterprise’

In a recent social media post, Bill Hughes revealed that the lawsuit accuses Binance and CZ of acting as a “depository” for millions of dollars in cryptocurrency siphoned from digital wallets and accounts of individuals and entities based in the US, following incidents of hacks, malware, theft, or ransomware attacks. 

The plaintiffs claim that the exchange and associates orchestrated a scheme to maximize profits from various sources, including US users, sanctioned entities, criminals, and crypto thieves.

The lawsuit accuses Binance and accomplices of operating the “Binance Crypto-Wash Enterprise,” a platform allegedly facilitating the transfer of illicitly obtained assets to Binance.com for conversion into different cryptocurrencies before being laundered and withdrawn to obscure their origins. 

This alleged enterprise is said to have facilitated the seamless movement of stolen cryptocurrency across the US and globally.

Blockchain Tracing Technology On Trial?

This latest legal battle comes months after Binance settled with US authorities over anti-money laundering and sanctions violations. CZ also stepped down as CEO as part of the deal and was later imprisoned for four months.

Hughes contends that this new class action lawsuit represents the “natural, predictable follow-on civil action” seeking to recover funds stolen from US consumers and laundered through Binance.

Interestingly, the lawsuit also suggests that had it not been for Binance’s alleged role in the laundering scheme, blockchain transaction tracing could have helped victims recover their stolen funds. Hughes explained:

Paragraph 4 essentially alleges ‘but for Binance, blockchain transaction tracing would have given these victims a chance to get back their stolen funds because everything is so transparent – there’s no place to launder/hide the money.

With “deep pockets” and a history of successful class actions, Hughes asserted that these plaintiff lawyers will surely present a formidable challenge for Binance and CZ as they navigate this latest legal minefield.

Furthermore, the lawsuit’s allegations regarding the role of blockchain analytics and asset recovery in the alleged money laundering scheme could have broader implications for the cryptocurrency industry as a whole. 

Suppose the case proceeds to discovery and pre-trial motions. In that case, the former DOJ prosecutor notes that the efficacy of blockchain tracing and on-chain asset recovery could be tested, potentially revealing vulnerabilities or limitations.

At the time of writing, the exchange’s native token, BNB, is trading at $552, down 1.8% in the last 24 hours. 

Featured image from DALL-E, chart from TradingView.com