CFTC Sues Binance, CEO for Illegal Derivatives Exchange: “Numerous Violations”

<p class="MsoNormal">The Commodity Futures Trading Commission (CFTC) has filed a lawsuit against cryptocurrency exchange Binance and Changpeng Zhao, its Chief Executive Officer, for “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations. The US derivatives market regulator also charged Binance for operating an illegal digital asset derivatives exchange.</p><p class="MsoNormal">The agency disclosed these on Monday, noting that it filed the charges before a district court in Illinois. According to the regulator, Binance acted as “a designated contract market or swap execution facility” by processing derivatives transactions without being registered.</p><blockquote class="twitter-tweet"><p lang="en" dir="ltr">Today the CFTC charged Binance and its founder, Changpeng Zhao, with willful evasion of federal law and operating an illegal digital asset derivatives exchange. Learn more: <a href="https://t.co/DdczFgvW6A">https://t.co/DdczFgvW6A</a></p>— CFTC (@CFTC) <a href="https://twitter.com/CFTC/status/1640378562619355137?ref_src=twsrc%5Etfw">March 27, 2023</a></blockquote><p class="MsoNormal">The watchdog said it also charged Binance Holdings Limited, Binance Holdings (IE) Limited and Binance (Services) Holdings Limited. These entities and others were deployed by Zhao to run the trading platform via “an intentionally opaque common enterprise.”</p><p class="MsoNormal">CFTC <a href="https://www.financemagnates.com/cryptocurrency/exchange/cftc-probes-binance-over-accepting-us-derivatives-traders/" target="_blank" rel="follow">has been investigating Binance since at least 2021</a> when insider sources told Bloomberg the derivatives regulator was probing the leading cryptocurrency exchange seeking to determine if the exchange was permitting US citizens to trade derivatives without being registered.</p><p class="MsoNormal">CFTC Blasts Binance’s “Sham” Compliance</p><p class="MsoNormal">In the complaint, CFTC alleged that starting from July 2019, Binance, after supposedly barring US customers from trading on its platform, actually instructed them on the best methods to evade its compliance controls. This process was particularly targeted at the exchange’s “commercially valuable US-based VIP customers,” CFTC said</p><p class="MsoNormal">Furthermore, for a considerable amount of time since July 2019, Binance failed to verify the identity of its customers. In addition, the exchange “failed to implement basic compliance procedures designed to prevent and detect terrorist finance and money laundering.”</p><blockquote class="twitter-tweet"><p lang="en" dir="ltr">CFTC appears to have some internal chat logs, doesn't sound great on paper“Like come on. They are here for crime.” “we see the bad, but we close 2 eyes.” <a href="https://t.co/SvK7hdwSnp">pic.twitter.com/SvK7hdwSnp</a></p>— db (@tier10k) <a href="https://twitter.com/tier10k/status/1640371236847988739?ref_src=twsrc%5Etfw">March 27, 2023</a></blockquote><p class="MsoNormal">In its complaint, CFTC also accused Binance of directing its employees to discuss control evasion with US-based customers using a messaging application that automatically deletes chats. This was done to erase evidence of the exchange’s efforts to retain its customers in the country, CFTC alleged.</p><p class="MsoNormal">“Defendants’ alleged willful evasion of U.S. law is at the core of the Commission’s complaint against Binance,” noted Gretchen Lowe, CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel.</p><p class="MsoNormal">“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,” Lowe added.</p><p class="MsoNormal">CFTC Slams Charges on Samuel Lim, Binance’s Ex-CCO</p><p class="MsoNormal">Meanwhile, CFTC said it also charged Samuel Lim, Binance’s former Chief Compliance Officer (CCO), with aiding and abetting the cryptocurrency exchange’s violations between 2018 and 2022. The former CCO partook in activities to help customers circumvent Binance’s compliance controls, the regulator said.</p><p class="MsoNormal">For instance, Lim promoted a policy that “instructed Binance’s US customers to access the trading facility through a virtual private network to avoid Binance’s IP address-based controls or create ‘new’ accounts through off-shore shell companies to evade Binance’s KYC-based controls,” CFTC explained.</p><p class="MsoNormal">“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law,” explained Rostin Behnam, CFTC Chairman.</p><blockquote class="twitter-tweet"><p lang="en" dir="ltr">1/ CFTC Sues Binance &amp; CZIn its complaint, the CFTC reaffirms its position that Bitcoin and Ethereum are commodities &amp;It declares Tether, BUSD and LTC are commodities!The CFTC has officially thrown down the gauntlet to the SEC and the "everything is a security" crowd.</p>— MetaLawMan (@MetaLawMan) <a href="https://twitter.com/MetaLawMan/status/1640393092476829697?ref_src=twsrc%5Etfw">March 27, 2023</a></blockquote><p class="MsoNormal">Binance and SEC</p><p class="MsoNormal">CFTC's action against Binance comes days after Coinbase, the largest cryptocurrency exchange in the United States, <a href="https://www.financemagnates.com/cryptocurrency/regulation/coinbase-expects-enforcement-action-amid-secs-wells-notice/" target="_blank" rel="follow">disclosed that it received a Wells notice</a> from the US Securities and Exchange Commission (SEC), suggesting possible regulatory actions.</p><p class="MsoNormal">Reports also emerged last year that<a href="https://www.financemagnates.com/cryptocurrency/news/sec-probing-binance-us-ties-with-two-affiliate-market-makers/" target="_blank" rel="follow"> the SEC was probing</a> the relationship between Binance's US arm and two market makers and trading affiliates, Sigma Chain AG and Merit Peak Limited. SEC over the years has also been <a href="https://www.financemagnates.com/cryptocurrency/sec-takes-gemini-genesis-to-court-for-selling-unregistered-securities/" target="_blank" rel="follow">taking actions against crypto firms</a> for their crypto offerings which it categorizes as unregistered securities.</p> This article was written by Solomon Oladipupo at www.financemagnates.com.

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Binance France under Probe over ‘Illegal’ Crypto Service, Money Laundering: Report

Binance’s local unit in France is being investigated by public prosecutors in Paris over ‘illegal’ provision of crypto services before it was licensed in May last year, CoinDesk reports. The exchange is also being probed for ‘acts of aggravated money laundering”, the outlet said, citing the French city’s public prosecutor’s office.

Local French daily, Le Monde, also reported receiving the same information from the prosecutor’s office. The outlet said Binance is suspected to have been offering digital asset services in the country since 2020. The exchange is also being scrutinized over the likelihood it engaged in crypto promotion before it became registered.

French anti-financial crime agency, the Financial Judicial Investigation Service, started investigating Binance in February 2022, with direction from specialized court, JIRS Paris, the publication reported.

Binance Says Inspection ‘The Norm’

The revelation about Binance France comes at a time the world’s largest cryptocurrency exchangeis battling a lawsuit from the US Securities and Exchange Commission (SEC) which alleged that the exchange offered unregistered securities on its illegal trading platform. US derivatives industry watchdog, the Commodity Futures Trading Commission, made similar allegations earlier in March.

However, reacting to the development, Changpeng Zhao, Binance’s CEO, in a tweet posted on Friday dismissed the report as “not news”, saying the exchange got a “surprise visit” from local authorities “a couple of weeks ago”. This type of “on-site inspections of regulated businesses are the norm for banks, and now for crypto too,” Zhao wrote. The CEO added that other unnamed ‘well known’ crypto firms in Paris were also inspected. He pledged that Binance France remains the company’s ‘flagship centre in Europe’.

4. FUD.In France, surprise (no advanced notice) on-site inspections of regulated businesses are the norm, for banks, and now for crypto too.The surprise visit for Binance France happened a couple of weeks ago. It's not "news". Binance France cooperated fully. Binance also… https://t.co/xdbLc5jXBW

In a separate tweet, Binance said that it “had an on-site visit last week by the relevant authorities,” but “will not comment on the specifics of law enforcement or regulatory investigations.”

“Binance, as always, was fully collaborative and we met our obligations accordingly,” Binance stated. “We continue to work closely with regulators and law enforcement agencies on all ongoing compliance requirements to uphold high standards.”

To clarify:In France, on-site visits by regulators and inspectors, are part of regulatory obligations to which all financial institutions must adhere. We had an on-site visit last week by the relevant authorities. Binance, as always, was fully collaborative and we met our…

Binance Faces Setback in Europe

Meanwhile, Binance, which recently marked its seventh license in the European Union area, suffered a blow in its expansion efforts on the continent. On Friday, the exchange announced its exit from the Netherlands after failing to secure a virtual asset service provider license. The exchange has also applied to cancel its Cypriot license, saying it wants to focus its efforts on its “fewer regulated entities in the EU.”

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