Regulators Move Against World’s Largest Crypto Exchange For ‘Disregard’ Of Financial Laws

Officials at the Commodity Futures Trading Commission, also known as the CFTC, filed a civil enforcement action against Binance CEO Changpeng Zhao and three entities with the company for “numerous violations” of the law.

Three business units within Binance, the largest cryptocurrency exchange in the world, allegedly chose to “knowingly disregard” portions of the Commodity Exchange Act while “engaging in a calculated strategy of regulatory arbitrage to their commercial benefit,” according to a statement from the agency. Zhao allegedly directed employees and customers to circumvent regulations, failed to require any identity verification, and neglected other compliance efforts meant to prevent terrorist financing and money laundering.

“Today’s enforcement action demonstrates that 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,” CFTC Chairman Rostin Behnam remarked. “For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of United States law.”

Binance allegedly advised top clients on how to avoid its own compliance measures, while employees used a communications platform that automatically deleted messages to tell customers about control evasions. Zhao is liable for the company’s violations because of his “long-running failure to act in good faith” in response to the misconduct; former Binance Chief Compliance Officer Samuel Lim was also charged with “willfully aiding and abetting” the violations, such as by encouraging the use of “creative means” to help clients avoid controls.

“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,” CFTC Enforcement Division Principal Deputy Director and Chief Counsel Gretchen Lowe added. “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.”

The actions against Binance, which was previously based in China and has been investigated by the Justice Department for alleged money laundering and tax infractions, occur amid a broader crackdown in the cryptocurrency sector from lawmakers and regulators. Securities and Exchange Commission Chairman Gary Gensler recently announced a $30 million settlement with cryptocurrency exchange Kraken after the firm failed to register its staking-as-a-service initiative, under which retail investors are compensated for holding certain digital assets. Gensler also charged Genesis Global Capital and Gemini Trust Company for raising billions of dollars in cryptocurrency assets through an unregistered offer.

Increased scrutiny toward companies that deal in cryptocurrencies, which are virtual units of exchange that are not managed by central banks, comes after FTX CEO Sam Bankman-Fried commingled funds with the exchange platform and sister trading firm Alameda Research. Bankman-Fried, who was a prominent contributor to Democratic campaigns, has been charged with conspiracy to commit wire fraud, conspiracy to commit securities fraud, and conspiracy to defraud the Federal Election Commission through campaign finance violations.

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