CFTC Sues Binance, CEO for Illegal Derivatives Exchange: “Numerous Violations”
- The derivatives regulator described Binance's compliance process as a "sham."
- CFTC also charged Binance's ex-CCO, Samuel Lim
The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against cryptocurrency exchange Binance and Changpeng Zhao, its Chief Executive Officer, for “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations." The US derivatives market regulator also charged Binance for operating an illegal digital asset derivatives exchange.
The agency disclosed these on Monday, noting that it filed the charges before a district court in Illinois. According to the regulator, Binance acted as “a designated contract market or swap execution facility” by processing derivatives transactions without being registered.
Today the CFTC charged Binance and its founder, Changpeng Zhao, with willful evasion of federal law and operating an illegal digital asset derivatives exchange. Learn more: https://t.co/DdczFgvW6A
— CFTC (@CFTC) March 27, 2023
The watchdog said it also charged Binance Holdings Limited, Binance Holdings (IE) Limited and Binance (Services) Holdings Limited. These entities and others were deployed by Zhao to run the trading platform via “an intentionally opaque common enterprise.”
The CFTC has been investigating Binance since at least 2021 when insider sources told Bloomberg the derivatives regulator was probing the leading cryptocurrency exchange seeking to determine if the exchange was permitting US citizens to trade derivatives without being registered.
CFTC Blasts Binance’s “Sham” Compliance
In the complaint, the CFTC alleged that starting from July 2019, Binance, after supposedly barring US customers from trading on its platform, actually instructed them on the best methods to evade its compliance controls. This process was particularly targeted at the exchange’s “commercially valuable US-based VIP customers,” the CFTC said.
Furthermore, for a considerable amount of time since July 2019, Binance failed to verify the identity of its customers. In addition, the exchange “failed to implement basic compliance procedures designed to prevent and detect terrorist finance and money laundering.”
CFTC appears to have some internal chat logs, doesn't sound great on paper
— db (@tier10k) March 27, 2023
“Like come on. They are here for crime.”
“we see the bad, but we close 2 eyes.” pic.twitter.com/SvK7hdwSnp
In its complaint, the CFTC accused Binance of directing its employees to discuss control evasion with US-based customers using a messaging application that automatically deletes chats. This was done to erase evidence of the exchange’s efforts to retain its customers in the country, the CFTC alleged.
“Defendants’ alleged willful evasion of U.S. law is at the core of the Commission’s complaint against Binance,” noted Gretchen Lowe, the CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel.
“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law,” Lowe added.
CFTC Slams Charges on Samuel Lim, Binance’s Ex-CCO
Meanwhile, the CFTC said it had charged Samuel Lim, Binance’s former Chief Compliance Officer (CCO), with aiding and abetting the cryptocurrency exchange’s violations between 2018 and 2022. The former CCO partook in activities to help customers circumvent Binance’s compliance controls, the regulator said.
For instance, Lim promoted a policy that “instructed Binance’s US customers to access the trading facility through a virtual private network to avoid Binance’s IP address-based controls or create ‘new’ accounts through off-shore shell companies to evade Binance’s KYC-based controls,” the CFTC explained.
“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law,” explained Rostin Behnam, CFTC's Chairman.
1/ CFTC Sues Binance & CZ
— MetaLawMan (@MetaLawMan) March 27, 2023
In its complaint, the CFTC reaffirms its position that Bitcoin and Ethereum are commodities &
It declares Tether, BUSD and LTC are commodities!
The CFTC has officially thrown down the gauntlet to the SEC and the "everything is a security" crowd.
Binance and SEC
CFTC's action against Binance comes days after Coinbase, the largest cryptocurrency exchange in the United States, disclosed that it had received a Wells notice from the US Securities and Exchange Commission (SEC), suggesting possible regulatory actions.
Moreover, reports emerged last year that the SEC was probing the relationship between Binance's US arm and two market makers and trading affiliates, Sigma Chain AG and Merit Peak Limited. Furthermore, the SEC over the years has been taking actions against crypto firms for their crypto offerings which it categorizes as unregistered securities.
The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against cryptocurrency exchange Binance and Changpeng Zhao, its Chief Executive Officer, for “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations." The US derivatives market regulator also charged Binance for operating an illegal digital asset derivatives exchange.
The agency disclosed these on Monday, noting that it filed the charges before a district court in Illinois. According to the regulator, Binance acted as “a designated contract market or swap execution facility” by processing derivatives transactions without being registered.
Today the CFTC charged Binance and its founder, Changpeng Zhao, with willful evasion of federal law and operating an illegal digital asset derivatives exchange. Learn more: https://t.co/DdczFgvW6A
— CFTC (@CFTC) March 27, 2023
The watchdog said it also charged Binance Holdings Limited, Binance Holdings (IE) Limited and Binance (Services) Holdings Limited. These entities and others were deployed by Zhao to run the trading platform via “an intentionally opaque common enterprise.”
The CFTC has been investigating Binance since at least 2021 when insider sources told Bloomberg the derivatives regulator was probing the leading cryptocurrency exchange seeking to determine if the exchange was permitting US citizens to trade derivatives without being registered.
CFTC Blasts Binance’s “Sham” Compliance
In the complaint, the CFTC alleged that starting from July 2019, Binance, after supposedly barring US customers from trading on its platform, actually instructed them on the best methods to evade its compliance controls. This process was particularly targeted at the exchange’s “commercially valuable US-based VIP customers,” the CFTC said.
Furthermore, for a considerable amount of time since July 2019, Binance failed to verify the identity of its customers. In addition, the exchange “failed to implement basic compliance procedures designed to prevent and detect terrorist finance and money laundering.”
CFTC appears to have some internal chat logs, doesn't sound great on paper
— db (@tier10k) March 27, 2023
“Like come on. They are here for crime.”
“we see the bad, but we close 2 eyes.” pic.twitter.com/SvK7hdwSnp
In its complaint, the CFTC accused Binance of directing its employees to discuss control evasion with US-based customers using a messaging application that automatically deletes chats. This was done to erase evidence of the exchange’s efforts to retain its customers in the country, the CFTC alleged.
“Defendants’ alleged willful evasion of U.S. law is at the core of the Commission’s complaint against Binance,” noted Gretchen Lowe, the CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel.
“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law,” Lowe added.
CFTC Slams Charges on Samuel Lim, Binance’s Ex-CCO
Meanwhile, the CFTC said it had charged Samuel Lim, Binance’s former Chief Compliance Officer (CCO), with aiding and abetting the cryptocurrency exchange’s violations between 2018 and 2022. The former CCO partook in activities to help customers circumvent Binance’s compliance controls, the regulator said.
For instance, Lim promoted a policy that “instructed Binance’s US customers to access the trading facility through a virtual private network to avoid Binance’s IP address-based controls or create ‘new’ accounts through off-shore shell companies to evade Binance’s KYC-based controls,” the CFTC explained.
“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law,” explained Rostin Behnam, CFTC's Chairman.
1/ CFTC Sues Binance & CZ
— MetaLawMan (@MetaLawMan) March 27, 2023
In its complaint, the CFTC reaffirms its position that Bitcoin and Ethereum are commodities &
It declares Tether, BUSD and LTC are commodities!
The CFTC has officially thrown down the gauntlet to the SEC and the "everything is a security" crowd.
Binance and SEC
CFTC's action against Binance comes days after Coinbase, the largest cryptocurrency exchange in the United States, disclosed that it had received a Wells notice from the US Securities and Exchange Commission (SEC), suggesting possible regulatory actions.
Moreover, reports emerged last year that the SEC was probing the relationship between Binance's US arm and two market makers and trading affiliates, Sigma Chain AG and Merit Peak Limited. Furthermore, the SEC over the years has been taking actions against crypto firms for their crypto offerings which it categorizes as unregistered securities.