crypto strategy

US regulator sues top crypto exchange Binance, CEO

The world’s largest crypto exchange, Binance, and its CEO and founder Changpeng Zhao have been sued by the Commodity Futures Trading Commission (CFTC) for operating an “illegal” exchange and a “bogus” compliance program, the market announced on Monday. American regulator.

Binance, Zhao and its former top compliance officer knowingly ignored US commodities law “while engaging in a calculated strategy of regulatory arbitrage to their business advantage,” the CFTC said.

From at least July 2019 to present, Binance “has offered and executed commodity derivatives transactions on behalf of U.S. persons,” in violation of U.S. law, the CFTC said in its complaint.

Binance’s compliance program was “ineffective” and the company, under Zhao’s leadership, told employees and customers to circumvent compliance checks, the CFTC said, citing several practices first reported by Binance. Reuters in a series of investigations into the exchange last year.

The CFTC also accused former Binance Chief Compliance Officer Samuel Lim of “aiding and abetting” Binance violations. Lim did not immediately respond to calls and messages from Reuters.

Binance, which dominates the global digital asset industry, did not immediately respond to requests for comment.

“For years, Binance has known they violated CFTC rules, actively working both to keep money flowing and to avoid compliance,” CFTC Chairman Rostin Behnam said in a statement. . “This should be a warning to anyone in the digital asset world that the CFTC will not tolerate the willful circumvention of US law.”

The CFTC’s decision comes amid a broader crackdown on crypto companies by US authorities.

Reuters reported in December that the US Department of Justice had been investigating Binance since 2018 for possible money laundering and sanctions violations. Binance has processed at least $10 billion in payments for criminals and companies seeking to evade US sanctions, according to Reuters reports on Binance.

Binance’s BNB cryptocurrency, the world’s fourth largest by market size, fell around 4% on the news. Bitcoin also dipped in the news, dropping as much as 5.1% on the day to hit a 10-day low of $26,541. It was last trading at around $26,900.

Zhao, a Chinese-born billionaire who arrived in Canada at age 12, has yet to respond directly to the CFTC’s allegations.

In a tweet on Monday afternoon, he simply wrote “4” – a reference to a previous post listing his “do’s and don’ts” for 2023. The fourth item on the list was “Ignore FUD, fake news, the attacks,” using an acronym for “fear, uncertainty, and doubt” often used in crypto in relation to news that is perceived as negative.

‘Pirate Ship’

Founded in Shanghai in 2017, Binance is at the heart of the global crypto industry. Its main exchange processed transactions worth around $23 trillion last year, according to data provider CryptoCompare. Its transaction volumes reached $34 trillion in 2021, Zhao said last year.

With a holding company based in the Cayman Islands, Binance has never disclosed the location of its main exchange. The CFTC charged the holding company, along with two other Binance units.

Binance did not require its customers to submit information verifying their identity before trading and “did not implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering” , he alleged.

The CFTC complaint details Binance’s efforts to retain US customers even after the company, in partnership with a supposedly independent US company, launched a US exchange in 2019 that would serve US customers in accordance with US regulations.

Reuters previously reported that this US company, BAM Trading, was actually controlled by Zhao and managed by Binance as a de facto subsidiary. The CFTC alleged that when Zhao hired BAM’s first CEO, he “described Binance as a pirate ship and explained that he wanted Binance.US to be a navy ship.”

VIP customers

Although Binance’s global business publicly stated at the time that it blocked US customers from trading on its platform, the CFTC alleged that Binance told its US-based “VIP customers”, commercially valuable, how to evade its own compliance checks.

Lim, chief compliance officer at the time, told a subordinate that these customers can use virtual private networks to bypass Binance’s IP address-based compliance check, adding that “we’re not supposed to tell them that”.

Zhao hid information reflecting Binance’s US customer base from some of its senior executives, according to the complaint. In October 2020, Zhao instructed Binance staff to change the US value of certain data fields in Binance’s internal database to UNKWN, the CFTC claimed.

The complaint said Binance traded on its own platform through some 300 “internal accounts,” all directly or indirectly owned by Zhao, though the exchange did not disclose this activity in its public terms of service or elsewhere. Internal accounts were exempt from Binance’s “insider trading” policy, the CFTC alleged.

A senior Binance executive told the Wall Street Journal in February that the company plans to pay sanctions to resolve the US investigations.

Binance was built by software engineers unfamiliar with laws and rules on bribery and bribery, money laundering and economic sanctions, Chief Strategy Officer Patrick Hillman said, adding that previous “gaps” in its regulatory compliance had since been closed.

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