CFTC accuses Binance, a crypto exchange, of illegally serving US customers

In a lawsuit against Binance and Changpeng Zhao, a US financial regulator accused Binance of illegally operating in the country. The suit seeks to injunct the largest crypto trading platform.

In a civil complaint filed Monday, the Commodity Futures Trading Commission claimed that Binance’s trading volume and profitability were largely due to “extensive solicitation and access” to US customers. This contradicts the claims of the exchange.

Binance was subject to US law’s registration and regulatory requirements due to Binance’s solicitation for customers in the United States. However, Binance, Zhao and Lim chose to ignore these requirements,” the CFTC complaint stated.

The latest conflict between the US regulators and the crypto exchange is the lawsuit filed in Chicago’s federal court. The lawsuit mentions Binance holdings, a Cayman Islands company that acts as a holding firm for the group’s offshore trading platform. According to the company, it does not have a formal headquarters and does no business with US customers.

Rostin Behrnam, the regulator’s chair, stated that today’s enforcement action “demonstrates that there is not location or claimed lack thereof that will prevent CFTC from protecting American Investors.” Binance was aware for years that they were infringing CFTC rules and worked actively to keep the money flowing while also avoiding compliance.

Binance described the CFTC complaint as “unexpected” and “disappointing”.

The exchange stated that it had made substantial investments in the last two years to make sure there are no US users on its platform.

Zhao posted “4” to Twitter following the filing by the CFTC. This code instructed his followers to ignore fake news and attack messages.

In its complaint, the CFTC cited internal communications which it claimed showed Binance knew that the platform facilitated illegal activities.

According to the complaint in 2019, Binance received information about Hamas transactions in one instance. Binance employees allegedly dismissed the possibility, saying that they could barely afford an AK-47 for 600 dollars.

According to the complaint, in 2020, a Binance executive stated via chat that certain customers, some of them from Russia, were “here to commit crime”. One colleague replied, “We see the good, but we close our eyes.”

Zhao and Binance’s senior managers “have actively facilitated violations US law”, according to the CFTC. This included instructing customers in the US how to evade company compliance controls. They were instructed to use virtual private network to hide their location. The complaint stated that 17.8% of Binance customers could be found in the US as of June 2020, one year after new controls were imposed.

Samuel Lim, Binance’s former chief compliance officer was also charged by the regulator with aiding and abiding in the alleged violations.

Lim stated to Zhao in 2019 that a “huge” number of Binance customers could be US citizens. According to a chat message in the CFTC complaint, they must be smarter and VPN through non US IP.

The CFTC seeks remedies that include monetary penalties, registration bans and trading bans, disgorgement and a permanent order against future violations.

US financial crime watchdog FinCEN identified Binance earlier this year as a counterpart to Bitzlato. Binance was also charged with transmitting more illicit crypto funds than the US money-laundering regulations.

The US Securities and Exchange Commission has also opposed Binance’s US affiliate to acquire assets from Voyager Digital, a crypto lending institution that went bankrupt last year.

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