“willful evasion” of US law and “engaging in a calculated strategy of regulatory arbitrage for their commercial gain” were the grounds for the CFTC’s lawsuit against Binance, Zhao, and its former top compliance executive.
The lawsuit filed by the regulator comes amid a widespread and growingly public crackdown on crypto companies. Cryptocurrency companies have been the targets of US prosecutors and civil investigators for years for evading and not adhering to regulations designed to prevent illegal activities. However, the pace of these government activities has recently increased.
The CFTC stated in its Monday complaint that Binance “offered and executed commodity derivatives transactions on behalf of US persons” in violation of American law.
The CFTC stated that Binance’s compliance program was “ineffective” and that Zhao’s direction permitted employees and customers to circumvent compliance controls. This was one of many findings that Reuters first reported during a series of investigations into the exchange that took place last year. citing procedures,
Samuel Lim, Binance’s former chief compliance officer, was also accused of “aiding and abetting” the company’s breaches by the CFTC. Reuters’ calls and messages did not receive an immediate response from Lim.
Despite the lawsuit being “unexpected and disappointing,” a Binance spokesperson stated that the company would continue to “cooperate” with regulators. Binance dominates the global market for digital assets.
The spokesperson went on to say that Binance has invested “significantly” to prevent US users from using its platform.
In a statement, CFTC Chairman Rostin Behnum said that Binance employees had known for years that the company “was in violation of CFTC rules, actively working to launder money and avoid compliance.”
The commodity and derivative markets, including bitcoin, are governed by the CFTC. The agency requires the registration of businesses like brokers that help US customers trade these products.
In December, Reuters reported that the US Department of Justice had been looking into Binance since 2018 for possible violations of sanctions and money laundering. According to Reuters, Binance has processed payments worth at least $10 billion for businesses and criminals attempting to circumvent US sanctions.
The news caused the fourth-largest cryptocurrency by market cap, Binance’s BNB, to drop nearly 4%.
Zhao, a billionaire who was born in China and moved to Canada when he was 12 years old, has not yet responded directly to the allegations made by the CFTC.
He wrote “4” in a tweet on Monday afternoon, referring to a previous post that listed his “dos and don’ts” for 2023. “Ignore FUD, fake news, attacks,” an abbreviation for “Fear, Uncertainty, and Doubt,” is the fourth item on the list. This phrase is frequently used in relation to crypto news that is perceived as negative.
“Pirate ship” Binance is at the center of the global crypto industry, having been established in Shanghai in 2017. According to CryptoCompare, a data provider, its main exchange, Binance.com, handled approximately $23 trillion in trade in the previous year. Last year, Zhao said that in 2021, the trading volume could reach $34 trillion.
The location of Binance’s core exchange, whose holding company is based in the Cayman Islands, has never been made public. The CFTC charged the holding organization and two other Binance elements.
According to the CFTC, Binance “failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering” and did not require customers to submit information that verified their identity prior to trading.
Even after Binance launched a US exchange in 2019 in partnership with an independent US company to serve US customers in accordance with US regulations, the CFTC complaint described the company’s efforts to retain US customers.
According to Reuters, BAM Trading, a company based in the United States, was actually managed by Binance as a de facto subsidiary. According to the CFTC, Zhao “described Binance as a pirate ship and explained that he wanted to make Binance” when he hired BAM’s first CEO. a navy ship from the United States.”
vip customer The CFTC said that Binance told its commercially valuable US-based “VIP customers” that its compliance controls How to avoid The CFTC said that Zhao withheld information regarding Binance’s US customer base from some senior managers. Despite the fact that Binance’s global business publicly stated that it was preventing US customers from trading on its platform, Binance told its “VIP customers” that its compliance controls. In Binance’s internal database, Zhao instructed employees to substitute “UNKWN” for the US value in a few data fields in October 2020.
Although the exchange did not disclose this activity, the CFTC claims that Zhao traded on Binance’s own platform through approximately 300 “house accounts,” either directly or indirectly owned by Zhao. According to the CFTC, house accounts are not subject to Binance’s “insider trading” policy.
In February, a senior executive at Binance told The Wall Street Journal that the company expected to pay the fine to settle the US investigation.
The CFTC stated that it wants financial penalties, the return of illegal gains, and a permanent ban on trading and registration.