Binance and its chief executive, Changpeng Zhao, are being sued in the US by commodity market regulators in a complaint that claims the defendants committed “wilful evasion of US law”.
The move is the most significant US enforcement action yet against the world’s largest cryptocurrency exchange.
The Commodity Futures Trading Commission (CFTC) said it had filed a civil enforcement action in a federal court in Chicago, charging Zhao and three entities that operate the Binance platform with numerous violations of the Commodity Exchange Act and CFTC regulations. The complaint also charges Binance’s former chief compliance officer, Samuel Lim, with helping Binance commit the violations.
The complaint alleges that Binance has grown its US business despite publicly stating its intent to block US customers from accessing the platform.
Allegations in the complaint include a claim that even after announcing US restrictions Binance told its most valuable US customers how to avoid its compliance controls.
“Defendants have disregarded applicable federal laws while fostering Binance’s US customer base because it has been profitable for them to do so,” the CFTC complaint stated. The CFTC said it was seeking punishments including fines and permanent trading bans.
Gretchen Lowe, the CFTC’s chief counsel, said Binance had put profits ahead of complying with the law. The complaint alleges that Binance has broken the law by offering commodity derivatives transactions – which effectively place a bet on the price of a cryptocurrency rather than buying it directly – to US customers since July 2019, despite not being registered with the CFTC.
Lowe said: “Defendants’ alleged wilful evasion of US law is at the core of the commission’s complaint against Binance. The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law.”
Howard Fischer, a partner at New York law firm Moses & Singer, said the CFTC action showed US regulators are taking concerted action against cryptocurrency exchanges, after the US financial watchdog – the Securities and Exchange Commission – said it was considering potential enforcement action against Coinbase.
“In conjunction with the SEC’s expected enforcement action against Coinbase, it looks like US regulators are taking steps to shutter or at least significantly restrict the US activities of the major remaining crypto exchanges,” he said.
The CFTC complaint claims Binance has offered and carried out derivatives transactions to US customers since 2019, despite saying that year that it would stop serving people in the US on its main platform. The CTFT claims Binance did not require customers to prove their identity before trading on the platform and failed to implement basic procedures to prevent terrorist financing and money laundering.
It added that Binance told employees to communicate with US customers about evading controls through a messaging app that was set to automatically delete messages. It said Zhao in particular had used the Signal app, set to auto-delete, for communications purposes.
The complaint alleges that Zhao, who founded Binance in 2017 and is worth an estimated $27.9bn according to Bloomberg, played a key role in the misconduct.
“Zhao is alleged to have been responsible for all major strategic decisions at Binance, including devising the secret plot to instruct US-based VIP customers to evade Binance’s compliance controls and instructing Binance employees to ensure all communications about their control subversion took place over applications that facilitated the automatic destruction of evidence,” said the CFTC in a statement.
A Binance spokesperson called the CFTC’s actions “unexpected and disappointing”. They said the company had been working collaboratively with the CFTC for more than two years and had “made significant investments over the past two years to ensure we do not have US users active on our platform.”
“Nevertheless, we intend to continue to collaborate with regulators in the US and around the world. The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime,” they said.
