The Commodity Futures Trading Commission (CFTC) charged Zhao, Binance Holdings Limited, Binance Holdings (IE) Limited and Binance (Services) Holdings Limited with violations of the Commodity Exchange Act (CEA) and CFTC regulations, the CFTC said on Monday (March 27).
It also charged Samuel Lim, Binance’s chief compliance officer from 2018 to 2022, with aiding and abetting these violations. The agency filed its lawsuit in federal district court in Chicago. It seeks monetary penalties as well as permanent trading and registration bans.
“For years, Binance knew they were violating CFTC rules, working actively to keep the money flowing and avoid compliance,” CFTC Chairman Rostin Behnam said in the release announcing the lawsuit. “This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law.”
In a statement provided to PYMNTS, Binance said it has been working collaboratively with the CFTC for two years and that it finds the filing “unexpected and disappointing.”
“Nevertheless, we intend to continue to collaborate with regulators in the U.S. and around the world,” the statement said. “The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”
The CFTC’s complaint alleges that while offering and executing commodity derivatives transactions to and for people in the U.S., Binance has had an ineffective compliance program and has instructed employees and customers to circumvent compliance controls.
It also alleges that Binance failed to implement procedures to prevent money laundering and terrorist financing, instructed U.S. customers on how to avoid its compliance controls after saying it had restricted U.S. customers from trading on its platform, and failed to supervise its activities as a futures commission merchant (FCM), the release said.
“Today’s enforcement action reflects that the CFTC and its Enforcement Division will pursue those digital asset platforms and individuals who flout and actively attempt to circumvent CFTC regulatory requirements,” Gretchen Lowe, CFTC’s Enforcement Division principal deputy director and chief counsel, said in the release.
In its statement, Binance said it has worked to ensure it doesn’t have U.S. users active on its platform, has boosted its compliance team from 100 to 750 over the past two years, and has spent an additional $80 million on external partners who support its compliance programs.
In February, Zhao denied reports that Binance was considering cutting ties with U.S. businesses, saying, “We pulled back on some potential investments, or bids on bankrupt companies in the U.S. for now. Seek permission first.”
Those comments followed a report by Bloomberg that the company was considering doing so due to greater regulatory scrutiny in the U.S.