The US Commodity Futures Trading Commission (CFTC) has filed a lawsuit against the world’s largest cryptocurrency exchange Binance, alleging that the company deliberately circumvented local regulations and knowingly facilitated the illicit flow of funds.
In a complaint to Binance, its founder Changpeng Zhao, and chief compliance officer Samuel Lim, the CFTC alleged that the Binance team has “actively facilitated violations of U.S. law,” including by instructing its U.S.-based clients how to circumvent compliance checks .
Binance has never registered with the CFTC for derivatives trading.
“Binance and its officers, employees and agents have instructed US customers to use virtual private networks (VPNs) to hide their location,” the complaint said.
Binance under Zhao’s leadership also allowed customers to continue using the platform even if they failed to comply with the ‘know your customer’ obligations and allowed selected US customers to “open Binance accounts under the name of newly formed shell companies to circumvent Binance’s compliance checks”.
Although it did not register with the CFTC, Binance failed to block US customers from accessing its services. In fact, the CFTC argues, Binance has “deliberately expanded, maintained, and at the same time concealed its U.S. customer base.”
At the same time, it also failed to implement effective AML [anti-money laundering] program required of financial institutions” to stop terrorist or other criminal activities.
The complaint alleges that Binance’s employees and senior management were well aware that it had a hand in funneling money for organized crime and designated terrorist organizations.
Internal messages quoted by the CFTC describe a case where Lim, the chief compliance officer, says of some Russian clients “they are here for crime” while another employee replied “we see the bad but we close 2 eyes”.
When an employee found a particularly untrustworthy account “very closely related to illegal activity” – it had over US$5 million from “questionable services” – they asked Lim if it was a case “where we would advise the user that they can create a new account”.
Lim’s response was to tell the user to “be careful with his money flow” and that “he can come back with a new account”, but the existing account “has to go, it’s infected”.
According to the CFTC claim, Binance also traded on its own platform using about 300 “house accounts,” including some owned by Zhao. Binance has reportedly avoided any attempt to monitor or investigate these accounts for evidence of insider trading.
The claim attempts to show how closely tied Zhao is to the company’s operations, pointing out that in January 2021 – a month in which the company earned $700 million in revenue – he personally approved a $60 expense report for office furniture.
Zhao, who goes by the name CZ, is one of the biggest names in the crypto world. It was his tweets about competitor FTX that did that facilitated its collapse.
In his answer against the CFTC claim, Zhao described it as “an incomplete recitation of facts”.
He said the company has developed “best-in-class technology to ensure compliance” and blocks US users using a range of different methods.
Zhao also shared how Binance has “the largest number of licenses/registrations worldwide”.
Regarding the allegations of possible insider trading and market manipulation, Zhao said the company “under no circumstances trades for profit or ‘manipulates’ the market.”