The US Financial market regulator, the Commodity Futures Trading Commission (CFTC) has sued Binance and its CEO, Changpeng Zhao for violating among many listed rules, its registration and
regulatory requirements as provided by U.S. law.
The regulator, in a lawsuit filed on Monday also expressed concern that Binance poorly adheres to Know your customer requirements.
The CFTC also said that the firm had offered unregistered crypto derivative products in the US, an act which goes against the country’s laws.
“Zhao, Lim, and other members of Binance’s senior management have failed to properly supervise Binance’s activities and, indeed, have actively facilitated violations of U.S. law, including by assisting and instructing customers located in the United States to evade the compliance controls Binance purported to implement to prevent and detect violations of U.S.
“Binance and its officers, employees, and agents have instructed U.S. customers to use virtual private networks (“VPNs”) to obscure their location; allowed customers that had not submitted proof of their identity and location to continue to trade on the platform long after announcing such conduct was prohibited; and directed VIP customers with ultimate beneficial owners, key employees who control trading decisions, trading algorithms, and other assets all
located in the United States to open Binance accounts under the name of newly incorporated shell companies to evade Binance’s compliance controls.
“Despite Binance’s solicitation of and reliance on customers located in the United States to generate revenue and provide liquidity for its various markets, Binance has never been registered with the CFTC in any capacity and has disregarded federal laws essential to the integrity and vitality of the U.S. financial markets, including laws that require the
implementation of controls designed to prevent and detect money laundering and terrorism financing, in violation of the Commodity Exchange Act (“Act” or “CEA”), 7 U.S.C. §§ 1–26, and the CFTC Regulations (“Regulations”), 17 C.F.R. pts. 1–190 (2022).
The regulator is seeking among other penalties, “civil monetary penalties and remedial ancillary relief, including, but not limited to, trading and registration bans, disgorgement, pre-and post-judgment interest, and such other relief as the Court may deem necessary and appropriate, ”
“Since the launch of its platform in 2017, Binance has taken a calculated, phased approach to increase its United States presence despite publicly stating its purported intent to “block” or “restrict” customers located in the United States from accessing its platform.
“All the while, Binance, Zhao, and Lim, the
platform’s former Chief Compliance Officer (“CCO”), have each known that Binance’s solicitation of customers located in the United States subjected Binance to registration and regulatory requirements under U.S. law. But Binance, Zhao, and Lim have all chosen to ignore those requirements and undermined Binance’s ineffective compliance program by taking steps to help customers evade Binance’s access controls.
“Defendants have disregarded applicable federal laws while fostering Binance’s U.S. customer base because it has been profitable for them to do so. For example, according to Binance’s own documents for the month of August 2020, the platform earned $63 million in fees from derivatives transactions, and approximately 16% of its accounts were held by customers Binance identified as being located in the United States.
“By May 2021, Binance’s monthly revenue earned from derivatives transactions increased to $1.14 billion. Binance’s decision to prioritize commercial success over compliance with U.S. law has been, as Lim paraphrased Zhao’s position on the matter, a “biz decision.” it said in the lawsuit.