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CFTC Charges Binance Digital Asset Exchange with Multiple Violations

S.J. Steinhardt
Published Date:
Mar 28, 2023

The Commodity Futures Trading Commission (CFTC) has charged Binance, the world’s largest cryptocurrency exchange, and its founder with “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations,” such as evading federal law and operating an illegal digital derivatives exchange.

In a civil complaint filed in the U.S. District Court for the Northern District of Illinois, Binance was charged with operating “its centralized digital asset trading platform along with numerous other corporate vehicles through an intentionally opaque common enterprise, with [Changpeng] Zhao at the helm as Binance’s owner and chief executive officer,” according to the CFTC press release. The defendants—including Samuel Lim, the company’s chief compliance officer from 2018 to 2022—were also accused of “allegedly [choosing] to knowingly disregard applicable provisions of the CEA (Commodity Exchange Act] while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”

The CFTC charged Binance with failing to require its customers to provide identity-verifying information before trading on the platform, in violation of the law, and lax compliance oversight regarding possible terrorist financing and money laundering activities.

Zhao and Lim were also accused of conducting “certain activities outside the U.S. designed to avoid CFTC regulation, such as intentionally structuring their entities and transactions to avoid registration requirements and instructing U.S. customers as well as other customers as to how to evade Binance’s compliance controls.”

Binance’s offshore exchange does not operate in the United States. Platforms that trade derivatives in the United States must be registered with the Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC). Binance operates a separate exchange for U.S. residents, Binance.US, that offers basic cryptocurrency trading.

A recent Wall Street Journal investigation showed how the company attempted to circumvent U.S. regulatory efforts.

“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance,” Rostin Behnam, the commission’s chairman, said in a news release. “This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law.”

In response, Binance called the CFTC’s allegations “unexpected and disappointing,” as the company had been working with the agency for more than two years, The Washington Post and others reported. “Nevertheless, we intend to continue to collaborate with regulators in the U.S. 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.”

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