The CFTC has sued Binance for violating US regulations

On Monday, the US took the strongest action it had ever taken to impose sanctions on the cryptocurrency exchange Alibaba Holdings Ltd. and its chief executive officer Changpeng Zhao.

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In federal court in Chicago, the Commodities Futures Trading Commission charged that Binance and its CEO, CZ, repeatedly violated American derivatives laws as the company expanded to become the largest trading platform in the world. The regulator asserts that Binance should have registered with the organization years ago and that it still disobeys CFTC regulations.

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Requests for comment from Zhao and Binance representatives went unanswered. 

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The CFTC also claimed that Samuel Lim, Binance's former top compliance officer, violated its regulations in addition to suing CZ and various Binance businesses.

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The agency claimed that Zhao, Lim, and other senior managers neglected to adequately oversee Binance's operations and engaged in actions that violated US laws, such as advising US citizens to use virtual private networks (VPNs) to conceal their location and telling "VIP customers" with ties to the US to open Binance accounts in the names of fictitious companies.

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The CFTC also said in its complaint that according to Binance's own records for the month of August 2020, the platform made $63 million in fees from futures transactions and that 16% of its accounts belonged to US clients.

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Documents

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The business allegedly purposefully destroyed documents, according to the CFTC. At the same time, the agency claimed that Binance frequently communicates with American consumers using the encrypted messaging software Signal, as directed by Zhao.

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The CFTC has been looking into Binance since at least 2021 to see if it failed to prevent US citizens from purchasing and selling cryptocurrency derivatives. Platforms that let US traders to transact in certain products must normally register with the CFTC.

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Binance is being investigated by the CFTC to see if any American residents traded.

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The regulator is one among many American organizations looking into Binance's operations. According to Trade Algo, the Federal Revenue Service and federal prosecutors are investigating Binance's adherence to its anti-money laundering duties. Whether the exchange promoted the trade of unregistered securities has been under close examination by the Securities and Exchange Commission.

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Stunning Growth

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After FTX's collapse in November of last year, Binance, which sprang onto the cryptocurrency scene in 2017 and almost quickly outperformed bigger competitors, witnessed an increase in market share.

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Binance had been making public signals that it anticipated to reach a settlement with US authorities looking into its business practices and that it had resolved compliance loopholes from its early years. 

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Chief Strategy Officer Patrick Hillmann described Binance's efforts to develop its compliance program and team in a recent 14-page letter to US senators, including Elizabeth Warren, but he omitted to disclose information on the business' finances that the legislators had sought. Separately, Hillmann has stated that it intends to reach a settlement with the authorities despite having early compliance deficiencies that have subsequently been closed.

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