The Commodity Futures Trading Commission (CFTC) filed a complaint against crypto exchange Binance and its founder Changpeng Zhao in Illinois federal court on March 27, alleging that Binance actively solicited U.S. users and subverted the exchanges own “ineffective compliance program”, according to the filing.
The lawsuit has the potential to disrupt the exchange’s operations and could be the first step in a regulatory crackdown on the world’s largest crypto exchange. Just days before the CFTC filed, CNBC reported on how Binance employees worked to subvert the exchange’s compliance controls in China.
The regulator alleges that Binance and Zhao violated eight core provisions of the Commodity Exchange Act, including laws that require controls “designed to prevent and detect money laundering and terrorism financing.”
Zhao and former legal official at Binance Samuel Lim, were accused of “actively cultivated lucrative and commercially important ‘VIP’ customers, including institutional customers, located in the United States”, the complaint said.
The regulator said that Binance and Zhao have taken steps to purposefully obscure where the exchange’s subsidiaries were located. CFTC noted that as of May 2021, Binance’s monthly revenue was $1.14 billion from derivatives transactions, up from $63 million in August 2020. Among them, about 16% of Binance accounts are held by US customers.
Zhao and other involved parties in Binance’s senior management have failed to properly supervise Binance’s activities and activities and, indeed, have actively facilitated violations of US law, according to the filing. Since 2021, CFTC has been investigating Binance for whether the exchange prevented Americans from buying and selling derivative cryptocurrencies. CFTC requires platforms to register with the agency if they are to allow Americans to trade these products.
Binance CEO Changpeng Zhao then posted a blog in response to the lawsuit filed by CFTC. He called the CFTC’s lawsuit “unexpected and disappointing”. The exchange had been working with the regulator for more than two years and would continue to collaborate with authorities in the US and elsewhere. For his part, CZ confirmed he has two accounts on Binance: one for Binance Card, the other for his crypto holdings. Sometimes CZ also needs to convert crypto to pay for personal expenses or for the Card.
CZ affirmed that Binance is always looking for friendly solutions to all problems, especially with regulators and government agencies all around the world. While it is not perfect, Binance will hold itself to a high standard, often higher than what existing regulations require.