In a recent development, a Brazilian congressional committee has recommended the indictment of Binance CEO Changpeng “CZ” Zhao and three other Binance executives following an extensive investigation into financial pyramid schemes in Brazil.
The committee’s report alleges fraudulent management practices, operating without sufficient authorization, and offering securities trading without approval against Zhao, Daniel Mangabeira, Guilherme Haddad Nazar, and Thiago Carvalho.
Binance Entangled In Alleged Financial Fraud Scheme
The report highlights that Binance, under the personal direction of Changpeng Zhao, established an “opaque network of legal entities” controlled directly or indirectly by Zhao, with no defined business purpose other than evading compliance with the law.
The committee’s findings reveal that Binance allegedly facilitated the movement of approximately R$40 billion (USD 7.7 million) in 2021 without proper oversight from regulated institutions.
The report further states that Binance was utilized as one of the companies involved in a financial pyramid fraud scheme linked to former waiter Glaidson Acácio dos Santos.
Moreover, according to the committee’s investigation, Binance needed to comply with regulations, creating an environment where client resources could not be safeguarded as separate assets.
Deposits from one client were potentially used to fulfill obligations to other clients, posing a risk to depositors’ funds. Additionally, there is concern that the exchange may need help to meet its commitments to Brazilian investors, potentially operating as a financial pyramid scheme.
Furthermore, the report highlights the exchange’s “irregular operations” in Brazil, including violations of tax laws. The crypto firm allegedly profits from its operations in Brazil while evading tax obligations using third-party financial service providers.
The report uncovers evidence of alleged fraudulent interposition by companies such as B Fintech and Capitual, suggesting an attempt to conceal income from the Brazilian Federal Revenue.
Notably, the Brazilian congressional committee believes that despite maintaining offices in multiple locations worldwide, Binance refuses to disclose the location of its headquarters, suggesting an “intentional approach” to circumventing regulatory obligations.
Potential Criminal Charges
If the indictment against Binance and its executives moves forward, the company could face several potential legal consequences.
Firstly, Binance executives, including CEO Changpeng Zhao, may be subject to criminal charges related to fraudulent management practices, operating without sufficient authorization, and offering securities trading without approval.
They could face fines, imprisonment, or other criminal penalties if found guilty. Additionally, regulatory bodies in Brazil, such as the Central Bank and financial authorities, may take regulatory actions against Binance, potentially resulting in fines, license revocation, or orders to cease operations in the country.
Binance could also face civil lawsuits from affected parties or investors who claim financial losses due to the alleged fraudulent practices. The company may have to compensate plaintiffs for damages incurred if found liable.
As the investigations progress, the spotlight remains on the crypto exchange and its executives, awaiting further legal actions and regulatory responses.
Featured image from CNN, chart from TradingView.com