Binance – the world’s biggest crypto exchange – was sued by the CFTC on Monday, along with its CEO Changpeng Zhao and its former chief compliance officer, Samuel Lim.
The regulator said they had been operating an “illegal” exchange, with a “sham” compliance programme, and charged them with “willful evasion” of U.S. law. (Zhao said in response that the CFTC’s complaint contains an “incomplete recitation of facts” and that the company does not agree with the characterization of many of the issues.)
Here’s the issue: the CFTC is the regulator for commodities and derivatives markets in the U.S., which includes bitcoin, and companies that allow U.S. customers to trade commodities and derivatives are required to register with the CFTC. Since Binance isn’t registered with the CFTC, it would be against U.S. law to have U.S. users trading derivatives on its platform. Binance said it has made “significant investments” to ensure it doesn’t have U.S. users on its platform. But the CFTC’s 74-page lawsuit says that Binance told employees and customers how to get around its own compliance rules that were supposed to keep U.S. customers away, so that top U.S.-based clients could still trade on the platform.
The CFTC also said that Binance “failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering.” Binance also traded on its own platform through around 300 “house accounts” which were exempt from Binance’s own insider trading rules, the CFTC said.
The lawsuit comes as U.S. regulators are increasingly cracking down on crypto companies (more on that below). The U.S. Department of Justice has also been investigating Binance since 2018 for possible money-laundering and sanctions violations, Reuters reported last year.
What next? The CFTC said it wants monetary penalties, disgorgement (i.e., repayment) of ill-gotten gains, and permanent bans on trading and registration. A top Binance executive told the Wall Street Journal in February the company expected to pay penalties to resolve U.S. investigations.
Who is “CZ”, the billionaire behind Binance? Check out the Reuters profile here.
