Regulators in the United States are suing cryptocurrency exchange Binance and its CEO Changpeng Zhao.
The Commodity Futures Trading Commission said Binance has been operating in the country illegally, without registration, and said its compliance efforts have been a “sham” as it continued operating practices with “wilful avoidance of US law”.
It is seeking financial penalties as well as a trading and registration ban in the US.
Binance, founded in 2017, claims to have more than 100m global users as the world’s largest cryptocurrency exchange.
The civil enforcement action was filed in the US District Court for the Northern District of Illinois against Chinese-born Canadian billionaire Zhao “and three entities that operate the Binance platform”.
The complaint also charges Samuel Lim, its chief compliance officer from 2018 to 2022, with “willfully aiding and abetting Binance’s violations through intentional conduct that undermined Binance’s compliance program”.
The complaint said the numerous Binance businesses were an “intentionally opaque common enterprise, with Zhao at the helm”. It accused Binance of “engaging in a calculated strategy of regulatory arbitrage to their commercial benefit”.
“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance,” said CFTC chairman Rostin Behnam. “This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of US law.
“There is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors. I have been clear that the CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market.”
Gretchen Lowe, CFTC’s enforcement division principal deputy director and chief counsel, added: “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.”
As alleged, at Zhao’s direction Binance instructed its employees and customers to circumvent compliance controls in order to maximise corporate profits.
The complaint charges that for much of the relevant period, Binance did not require its customers to provide any identity-verifying information before trading on the platform, despite this being a legal duty. It is also accused of failing to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering.
The complaint further alleges that even after Binance purported to restrict US customers from trading on its platform, Binance instructed its customers – in particular its commercially valuable US-based VIP customers – on the best methods for evading Binance’s compliance controls.
This included using a messaging application that was set to automatically delete written communications “to avoid leaving any evidence of their efforts to retain US-based customers”.
Binance insisted it had blocked users identified as US citizens or residents from the platform, as well as those with a US mobile number.
“This filing is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the US and around the world,” it said.
“The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”