The Commodity Futures Trading Commission on Monday filed civil charges against the crypto giant Binance, and CEO Changpeng "CZ" Zhao, in the U.S. District Court for the Northern District of Illinois, accusing the exchange of illegally offering services to U.S. customers and not properly registering.
In a 74-page complaint, the CFTC laid out seven counts—including failures of supervision, failing to implement know-your-customer and anti-money laundering procedures, and not registering as a futures commission merchant—and commented: "Defendants have disregarded applicable federal laws while fostering Binance’s U.S. customer base because it has been profitable for them to do so."
A spokesperson for Binance did not immediately respond to a request for comment.
The stateless Binance has often clashed with U.S. regulators. After its founding in 2017 by Zhao, the exchange experienced an atmospheric rise, quickly becoming the largest global cryptocurrency exchange while adjusting its compliance measures.
Binance operates a separate entity for U.S. customers known as Binance.US, although the CFTC is alleging that it knowingly offered its core services to U.S. clients as well, including lucrative "VIP" customers that included institutional firms.
The CFTC is not the first U.S. agency to target Binance. The Department of Justice has a longstanding criminal investigation into the company over money laundering violations that began in 2018. In February, the Wall Street Journal reported that Binance is expecting to pay monetary penalties to settle various investigations, which could total upwards of $1 billion.
In mid-February, the New York Department of Financial Services ordered Paxos, a U.S.-based firm, to stop issuing the Binance-branded stablecoin BUSD after reports that the exchange was using customer collateral associated with the token for its own purposes.
Binance has sought to shed its rogue reputation, hiring figures in the U.S. such as former Edelman executive Patrick Hillmann to serve as chief strategy officer, but the latest charges from the CFTC demonstrate that the firm is still under the magnifying glass of U.S. regulators.
"Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors," CFTC Chair Rostin Behnam said in a statement. "For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance."
The CFTC drew on emails and chats from Binance employees, finding that the company had offered commodity derivatives transactions to U.S. customers since at least July 2019. The agency alleges that under Zhao's direction, the company instructed its employees and customers to circumvent compliance controls by using privacy tools such as VPNs. In some cases, the CFTC says Binance willfully operated outside the U.S. to avoid requirements while still finding loopholes to operate in the country.
At the top of this was the enigmatic cofounder and CEO, Zhao, whom the CFTC has charged with "devising the secret plot to instruct U.S.-based VIP customers to evade Binance's compliance controls."
Along with Zhao, the complaint also charges Samuel Lim, Binance's former chief compliance officer, with aiding and abetting the firm's violations.
