“For years, Binance knew it was violating CFTC rules, actively working to keep money flowing and avoiding compliance,” Rostin Behnam, the commission's chairman, said in a statement. Press release announcing the civil complaint. “This should be a warning to anyone in the world of digital assets that the CFTC will not tolerate deliberate evasion of US law.”
In a statement to The Washington Post, Binance said the CFTC's allegations were "unexpected and disappointing" as the company had been working with the agency for more than two years. “However, we intend to continue to collaborate with regulators in the US and around the world,” the company said. “The best way forward is to protect our users and work with regulators to develop a clear and thoughtful regulatory regime.”
The company added that it has made "significant investments" to ensure that US users cannot use its platform. In the past two years, the company said, its compliance staff has grown from 100 to 750 people., including 80 with experience in law enforcement, regulation and compliance. The company also said it has spent heavily on third-party compliance assistance.
Although its offshore exchange is not officially available to US residents, Binance far outperforms its peers, with trading volumes surpassing the following competitors combined, according to the crypto-analytics site. CoinGecko.
The Binance offshore exchange does not operate in the United States because it offers risky financial products, such as crypto derivatives, which are generally prohibited in the country. Binance operates a separate exchange for US residents that offers a smaller menu of products.
Zhao is one of the most prominent figures in the world of cryptocurrencies. In November, his rivalry with disgraced FTX founder Sam Bankman-Fried came to a head when Zhao cast doubt on FTX's stability, helping fuel a massive sale of company tokens and triggering a chain of events that led to the collapse of FTX and criminal charges. against Bankman-Fried.
Since the FTX collapse, the cryptocurrency industry has faced increasing regulatory pressure. On Thursday, Do Kwon, a featured crypto founder, was arrested in Montenegro and later charged with fraud in the United States. The day before Kwon's arrest, the Securities and Exchange Commission filed a complaint against eight celebrities, accusing them of not disclosing their compensation for promotions. In February, Kraken, a US-based cryptocurrency exchange, settled charges with the SEC and agreed to stop selling certain assets and pay a $30 million penalty fee.
The Department of Justice has been investigating Binance's activities in recent months, issuing subpoenas to hedge funds that may have contacted the company. The Post reported in January. While the investigation doesn't necessarily mean prosecutors will press charges, experts said the investigation may involve possible violations of the Bank Secrecy Act, which requires financial institutions to verify the identities of their customers and report suspicious activity, including evasion. taxes and money laundering. Reuters reported in December that prosecutors were considering whether they had enough evidence to file criminal charges.
The civil lawsuit filed Monday by the CFTC alleges that Binance allowed users to trade on its platform without verifying their identities, despite being required to do so. The company "failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering," the agency said.
The CFTC alleges that Binance conducted activities outside of the United States specifically to avoid regulation. Zhao, who was born in china then immigrated to vancouverhas said that the company has not had a formal headquarters since 2020.
Regulators also accuse Binance of helping US clients use its site abroad by instructing them to use virtual private networks, or VPNs, programs that can mask a user's IP address and allow them to access restricted websites in his own country. Zhao was an architect of that "secret plot," according to the CFTC, which further alleges that Zhao instructed employees to destroy evidence that they had helped investors circumvent controls.
Lim, who served as Binance's director of compliance from 2018 to 2022, assisted Zhao in those efforts, according to the CFTC.
