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Binance and its CEO are now in the middle of a regulatory crackdown after the CFTC filed a non-compliance complaint against the firm. The complaint alleges that Binance actively solicited U.S. users and undermined the exchange's own "ineffective compliance program."
Its former chief compliance officer Samuel Lim was also named in the complaint filed by the Commodity Futures Trading Commission in federal court in Illinois on March 27.
The filing has the potential to set the exchange’s operations and is perhaps just the opening volley in a regulatory attack on the world’s biggest crypto exchange. Beyond disgorgement and any monetary costs, the CFTC filing asked the court to impose further relief, including trading and registration bans.
The regulator stated that Binance, Zhao, and Lim breached eight basic articles of the Commodities Exchange Act, including regulations that require procedures “designed to prevent and identify money laundering and terrorist financing.”
Binance’s downfall?
CNBC reported just days before the CFTC filing that Binance employees had worked to subvert the exchange's compliance controls in China, using some of the same methods that the CFTC alleges Binance used to solicit U.S. users. According to the complaint, Zhao and Lim are said to have actively cultivated lucrative and commercially important 'VIP' customers, including institutional customers located in the United States.
The CFTC's action shows that it will protect American investors regardless of where they are located or what they claim to be. When it comes to the volatile and risky digital asset market, CFTC chair Rostin Benham has been clear that the agency will continue to use all of its authority to find and stop misconduct.
The regulator said that Zhao and Binance made measures to conceal the locations of the exchange's subsidiaries on purpose. The regulator said in the complaint that this was a component of a bigger plan that Zhao claimed was intended to "keep countries clean."
The exchange's VIP program, which caters for high net worth people, was a crucial component of Binance's claimed campaign to earn fees and attract U.S. customers, according to the CFTC document.The CFTC complaint claims that Binance is aware of the names and locations of its VIPs because Binance analyzes its sources of transaction volume and fee-based income as a matter of course in executing its operations."
The CFTC said that Binance provided VIPs advance notice or advised them to remove their assets from the platform when law enforcement officials pursued them or frozen their assets.
CZ responds to the accusations
A few hours after the filing, Zhao issued a statement in which he claimed that the allegations were untrue and that Binance had complied with all requests from domestic and foreign law enforcement and had additionally frozen $160 million at their request so far this year.
According to data given by DefiLlama, $318 million had flowed out of Binance in the 24 hours since the accusations were made as of press time, indicating that some degree of FUD developed in the midst of the development.
While the case against Binance continues, the exchange's ability to ease the CFTC's concerns will determine whether or not it can continue to operate in the United States.