The Commodity Futures Trading Commission has criticized cryptocurrency exchange Binance, co-founder Zhao Changpeng and former chief compliance officer Samuel Lim for actively soliciting U.S. users and for the exchange’s own ” I filed a complaint alleging that I interfered with an ineffective compliance program. According to documents filed in federal court in Illinois on Monday.
The filing could turn the exchange’s operations upside down and could be just the first salvo of a regulatory crackdown on the world’s largest cryptocurrency exchange. The CFTC filing asked the court for further remedies beyond exploitation and financial costs, including barring trade and registration.
Regulators found Binance, Zhao, and Lim in violation of eight key articles of the Commodity Exchange Act, including laws requiring controls “designed to prevent and detect money laundering and terrorist financing” claimed to have
Just days before the CFTC submission, CNBC report On how Binance employees worked to subvert the exchange’s compliance controls in China, the CFTC used some of the same techniques Binance solicited U.S. users.
According to the complaint, Zhao and Lim “aggressively developed lucrative and commercially important ‘VIP’ clients, including domestic institutional investors.”
“Today’s enforcement action shows that the CFTC claims there is no place, or no place, to prevent it from protecting American investors. It’s a dangerous digital asset market,” said CFTC Chairman Rostin. Benham said. statement.
Binance and Zhao have deliberately taken steps to hide the location of their exchange subsidiaries, the regulator said. This was part of a larger strategy, which Zhao said was an effort to “keep the country clean,” the regulator claims in a filing.
A key part of Binance’s alleged efforts to generate fees and attract US users was the exchange’s VIP program for high net worth individuals, the CFTC filing said.
“Because Binance is aware of the identities and geographic locations of VIPs, Binance monitors trading volumes and fee-based revenue sources as a matter of course in the conduct of its business,” the CFTC complaint states. claims.
Binance’s VIPs were given special privileges when law enforcement pursued them or had their assets frozen, the CFTC argued, urging Binance to bring VIPs to their attention or remove their assets from the platform. claimed to have proposed
“Don’t tell users to do it directly,” Binance told its VIP team, the filing claims. “If you are a big trader or a smart trader, you can get a hint.”
A few hours after submission, Zhao statementBinance has cooperated with international and U.S. law enforcement inquiries, saying it has frozen $160 million year-to-date at the direction of law enforcement, suggesting that the allegations do not provide a full representation of the facts. said i understand
CNBC previously reported that Binance customer service and VIP representatives advised users in mainland China on how to circumvent Binance’s compliance system. Some volunteers and employees encouraged traders in mainland China to use virtual private networks and alternative non-state documents. CFTC filings allege that Binance has conducted similar activities with US users.
“But whenever possible, we try to ask users to use a VPN or (if there is substance) to provide non-U.S. documents. It doesn’t look like there are, but we really need to get them, through other creative means,” Lim told Binance employees in 2020.
Lim allegedly advised against outright fraud but encouraged “creative avenues” to circumvent regulation. Binance “can encourage people to become non-KYC accounts,” says Lim. KYC, short for Know-Your-Customer, is a set of principles that guide anti-money laundering programs for financial institutions and is an important part of the fight against terrorists and illegal financing.
“We have invested heavily over the past two years to prevent US users from being active on our platform,” a Binance spokesperson said in a statement, adding that the complaint “ It is unexpected and disappointing,” he said.
earlier in the day, Zhao posted a tweet with “4” as an apparent reaction to the CFTC submission.
number 4 is phone Dismiss negative publicity about the exchange as “fake news” to Binance’s dedicated international user base.
“The best way forward is to protect users and work with regulators to create a clear and thoughtful regulatory regime,” Binance said in a statement.
Zhao’s individual reaction echoed that. “We will continue to respect and cooperate with regulators in the U.S. and around the world,” said Binance CEO.