CFTC sues Binance, CEO Zhao over ‘evasion’ of U.S. laws

According to the regulator, Binance, Zhao, and Lim breached eight core provisions of the Commodity Exchange Act

The Commodity Futures and Trading Commission (CFTC) filed a complaint against crypto exchange Binance, co-founder Changpeng Zhao (CZ), and ex-chief compliance officer, Samuel Lim, alleging that the crypto exchange actively solicited U.S. users and deposed the exchange’s own ‘ineffective compliance program,’ as per a filing in Illinois federal court Monday.

The filing has the potential to overcome the exchange’s operations and is probably just the first volley in a regulatory clampdown on the world’s biggest crypto exchange. Beyond disgorgement and any monetary costs, the regulator filing asked the court to impose more relief, including trading and registration prohibitions.

According to the regulator, Binance, Zhao, and Lim breached eight core provisions of the Commodity Exchange Act, including laws that require controls aimed at preventing and detecting money laundering and terrorism financing.

Zhao and Lim supposedly ardently cultivated attractive and commercially important ‘VIP’ customers, including institutional customers, located in the US, according to the complaint.

Today’s enforcement action shows that there is no location, or claimed lack of location, that will stop the Commodity Futures and Trading Commission from safeguarding American investors. I have been clear that the Commodity Futures and Trading Commission will continue to use all of its authority to detect and prevent wrongdoing in the volatile and insecure digital asset market, according to Commodity Futures and Trading Commission chair Rostin Benham.

Binance and Zhao took measures to purposely obscure the locations of the exchange’s subsidiaries, stated the regulator. This was part of a bigger strategy that Zhao said was an attempt to “keep countries clean,” the regulator claimed in the filing.

A crucial part of Binance’s alleged attempt to generate fees and solicit U.S. users was the exchange’s VIP program, for high net worth individuals, the Commodity Futures and Trading Commission filing stated.

Binance is aware of the identities and geographic locations of its VIPs because Binance monitors its sources of transaction volume and fee-based revenue as a matter of course in conducting its operations, the Commodity Futures and Trading Commission complaint alleges.

Binance’s VIPs were proposed special benefits when law enforcement agencies trailed them or froze their assets, the Commodity Futures and Trading Commission alleged, claiming Binance gave VIPs a heads up or proposed they take their assets off the platform.

Hours after the filing, Zhao said in a statement, that he found the allegation did not offer a total representation of the facts, stating that Binance cooperated with international and U.S. law enforcement queries and had frozen $160mln at the direction of law enforcement YTD.

Lim supposedly advised against outright fraud but encouraged “creative means” to evade regulations.

We have made considerable investments over the past two years to make sure we do not have US users active on our platform, a Binance spokesperson said in a statement, calling the complaint “unexpected and disappointing.”