• CFTC is suing Binance for violating the Commodity Exchange Act and CFTC regulations
• Binance’s compliance efforts were “a sham.”
• The US Department of Justice has been investigating since 2018 – a lawsuit is still pending
Following the bankruptcy of crypto exchange FTX, founder Sam Bankman-Fried was charged with fraud, money laundering and other crimes. The calls for stricter regulation of the crypto market were getting louder again. Changpeng Zhao, founder and CEO of crypto exchange Binance, predicted last year that authorities would scrutinize the sector much more closely, which he thinks is probably a good thing, according to The Washington Post.
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However, Binance itself is also in the sights of the regulators. According to Reuters, the US Department of Justice has been investigating the crypto exchange since 2018, and the US Securities and Exchange Commission has also targeted Binance and BUSD publisher Paxos for “illegal securities issuance”. After Binance was confronted with new allegations a few weeks ago that the crypto exchange had shifted customer funds that were actually intended to secure certain stablecoin deposits, the US regulator Commodity Futures Trading Commission (CFTC) filed a lawsuit against the trading platform a few weeks later digital currencies.
The CFTC is making these allegations against Binance
The CFTC’s civil enforcement action targets Binance founder Changpeng Zhao and three companies operating the Binance platform for numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations. In addition, Samuel Lim, Binance’s former Chief Compliance Officer, is also accused of “aiding in Binance’s violations.” “In its ongoing litigation against the defendants, the agency is seeking indictments, civil penalties, permanent trading and registration bans, and a permanent injunction against further violations of CEA and CFTC rules,” the CFTC said in a late March statement .
The CFTC reports that, according to the complaint, since July 2019, Binance has “offered and conducted commodity derivative transactions to and for US persons.” Binance’s compliance program was ineffective. According to the complaint, “despite the legal obligation that companies like Binance acting as Futures Commission Merchants (FCMs)” must collect identity-verifying information, Binance did not require its customers to provide it prior to trading on the platform for much of the relevant period provide platform. In addition, the company failed to “implement basic compliance procedures to prevent and detect terrorist financing and money laundering.”
It is even claimed that after allegedly restricting trading for US customers on its platform, Binance informed them “of the best practices for circumventing Binance’s compliance controls.” The communication took place via a messaging application “which was set to automatically delete written messages”. According to the complaint, this communication method was used in order to leave as little evidence as possible.
The crypto exchange is also accused of “acting as a designated contract market or swap execution facility due to its role in facilitating derivatives transactions without registering with the CFTC” and the defendants are accused of “failing to carefully monitor Binance’s activities as an FCM.” according to the CFTC. “The complaint further accuses Binance, Zhao and Lim of willfully circumventing the requirements of the CEA.”
Due to his control over Binance and his long-standing failure to respond to Binance’s misconduct, Binance founder Changpeng Zhao is liable for the crypto exchange’s violations. He “is said to have been responsible for all major strategic decisions at Binance.” Former CCO, Samuel Lim, is accused of supporting and abetting Binance’s violations through willful conduct that undermined Binance’s compliance program and “engaged in activities to intentionally circumvent or attempt to circumvent applicable provisions of the CEA.” .
“The defendants’ alleged willful circumvention of US law is at the heart of the Commission’s complaint against Binance. The defendants’ own emails and chats reflect that Binance’s compliance efforts were a fraud and Binance was aware – always again – decided to place profits instead of following the law,” said Gretchen Lowe, principal deputy director and chief counsel of the CFTC Enforcement Division.
Will more lawsuits follow?
As BTC-ECHO reports, lawyers are also critical of the Binance case. “At least large parts of the lawsuit are apparently well founded, with a number of pieces of evidence and communication right up to the company management. The allegation is serious,” US attorney Philipp Behrendt quoted as saying by the crypto portal. “The CFTC only seems willing to settle if Binance at least closes all of its US operations, pays back profits from US operations, and accepts a fine.” Lawyer Phil Hamacher, who specializes in crypto, among other things, considers the allegations to be “undeniably serious” and explained: “In particular, that Binance should not have hidden terrorist financing with open eyes. That will have to be investigated.”
According to the lawyers, it is now crucial what the US Department of Justice, which – as already mentioned – has been investigating against Binance since 2018, does next. The investigation is said to be about compliance with US money laundering laws and sanctions. A lawsuit from the US Department of Justice is pending, but after the CFTC lawsuit, other agencies could follow suit, and a lawsuit from the Department of Justice could have even more drastic consequences for Binance.
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