CFTC accuses Binance of breaking rules and helping clients evade checks

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An earlier version of this story incorrectly stated that the Commodity Futures Trading Commission filed its civil suit against Binance on Wednesday. The complaint was filed Monday, March 27.

Binance, the world’s largest cryptocurrency exchange, was indicted on Monday by US commodity regulators who allege the company broke regulations and showed US customers how to evade compliance checks.

The Commodity Futures Trading Commission has filed a civil complaint in federal court in the Northern District of Illinois, accusing Binance and its founder Changpeng Zhao of violating the Commodity Exchange Act and CFTC rules, which regulate crypto derivatives such as than futures contracts. Samuel Lim, the company’s former chief compliance officer, was also charged.

For years, Binance has known they were violating CFTC rules, actively working both to keep money flowing and to avoid compliance, Rostin Behnam, the commission’s chairman, said in a press release announcing the civil complaint. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate the willful circumvention of US law.

In a statement to The Washington Post, Binance said the CFTC allegations were unexpected and disappointing, as the company had been working with the agency for over two years. Nonetheless, we intend to continue working with regulators in the United States and around the world, the company said. The best way forward is to protect our users and work with regulators to develop a clear and thoughtful regulatory regime.

The company added that it had made significant investments to ensure that US users could not use its platform. Over the past two years, the company said, its compliance staff has grown from 100 people to 750 people, 80 of whom have experience in enforcement, regulation and compliance. The company also said it has spent heavily on third-party compliance assistance.

Although its offshore exchange is not officially available to US residents, Binance far exceeds its peers, with trading volumes that exceed the next competitors combined, according to crypto analytics site CoinGecko.

The Binances offshore exchange does not operate in the United States as it offers risky financial products, such as crypto derivatives, which are generally prohibited in the country. Binance operates a separate exchange for US residents that offers a smaller menu of products.

Zhao is one of the most important figures in the cryptocurrency world. In November, his rivalry with disgraced FTX founder Sam Bankman-Fried came to a head when Zhao questioned the stability of FTX, helping to fuel a company token sale and sparking a chain of disputes. events that led to the collapse of FTX and criminal charges. against Bankman-Fried.

Since the collapse of FTX, the crypto industry has faced increasing regulatory pressure. On Thursday, Do Kwon, a prominent crypto founder, was apprehended in Montenegro and later charged with fraud in the United States. The day before Kwons’ arrest, the Securities and Exchange Commission filed a lawsuit against eight celebrities, accusing them of failing to disclose their compensation for promotions. In February, Kraken, a US-based crypto exchange, settled the charges with the SEC, agreeing to stop selling certain assets and pay a $30 million fine.

US subpoenas hedge funds in crypto exchange Binance investigation

The Department of Justice has probed Binances’ activities in recent months, issuing subpoenas to hedge funds that may have contacted the firm, The Post reported in January. While the probe doesn’t necessarily mean prosecutors will press charges, experts said the investigation could involve possible breaches of the Bank Secrecy Act, which requires financial institutions to verify the identity of their customers. and to report suspicious activities, including tax evasion and money laundering. Reuters reported in December that prosecutors were assessing whether they had enough evidence to press charges.

The civil complaint filed Monday by the CFTC alleges that Binance allowed users to trade on its platform without verifying their identity, despite being required to do so. The company has not implemented basic compliance procedures designed to prevent and detect terrorist financing and money laundering, the agency said.

The CFTC alleges that Binance conducted business outside of the United States specifically to avoid regulation. Zhao, who was born in China and later immigrated to Vancouver, said the company hasn’t had an official headquarters since 2020.

Regulators also accuse Binance of helping US customers use its offshore site by requiring them to use virtual private networks or VPN programs that can hide a user’s IP address and allow them to access sites. Web restricted in their own country. Zhao was an architect of this secret plot, according to the CFTC, which further alleges that Zhao instructed employees to destroy evidence that they helped investors circumvent controls.

Lim, who worked as Binances’ chief compliance officer from 2018 to 2022, assisted Zhao in those efforts, according to the CFTC.

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