The Commodity and Futures Commission (CFTC) announced on Thursday charges against Binance founder Changpeng Zhao and three entities that operate the Binance platform with a number of violations of the Commodity Exchange Act (CEA) and CFTC regulations. Samuel Lim, Binance’s former chief compliance officer, is also named in CFTC’s complaints.
According to CFTC’ filings, Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited (together, Binance) run the Binance centralized digital asset trading platform “through an intentionally opaque common enterprise”.
Furthermore, the US regulator stated that the violations were intentional.
The CFTC said:
The defendants allegedly chose to knowingly disregard applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.
The complaint alleges that Binance has offered and executed commodity derivatives transactions for US clients since July 2019. Moreover, the CFTC said that Binance directed its employees and customers to get around compliance controls detailing that they were encouraged to use messaging applications set to automatically delete written communication to avoid leaving evidence. The complaint also claims that Binance, Zhao and Lim intentionally structured their entities and transactions to avoid registration requirements and guided US customers to evade Binance’s compliance controls.
Further, Binance did not require identity-verifying information from its customers despite requirements for entities functioning as futures commission merchants (FCMs) to collect such information. The crypto exchange failed to implement basic procedures to prevent terrorist financing and money laundering.
According to the regulator, Binance claimed to restrict US customers from trading on its platform, but at the same time instructed commercially valuable US-based VIP customers on the best methods for evading Binance’s compliance controls.
Binance has denied the allegations saying the charges were unexpected since the company has been working together with the CFTC.
The crypto exchange responded:
Today, the CFTC filed an unexpected and disappointing civil complaint, despite our working cooperatively with the CFTC for over two years.
Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.
