As the US tries to find its feet after waves of criticism over its handling of the current bank crises, which regulators believe was partially caused by over exposure to crypto and associated assets, its financial regulator has accused Binance of operating illegally in the country.
In a lawsuit that seeks fines and an injunction against the world’s largest crypto trading exchange and its chief executive Changpeng Zhao, the Commodity Futures Trading Commission alleged in a civil complaint filed that much of Binance’s reported trading volume and profitability have come from “extensive solicitation of and access to” US customers, contradicting the exchange’s claims.
“Binance’s solicitation of customers located in the United States subjected Binance to registration and regulatory requirements under US law. But Binance, Zhao, and Lim have all chosen to ignore those requirements,” the CFTC’s complaint said.
The lawsuit is the latest flashpoint between the crypto exchange and US regulators. Parent company Binance Holdings — which is mentioned in the CFTC’s lawsuit — is a Cayman Islands entity that acts as a holding company for the group’s offshore trading platform.
The company says it has no formal headquarters and does not serve US customers.
“Today’s enforcement action demonstrates that there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors,” said Rostin Behnam, the regulator’s chair.
“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance.”
Binance called the CFTC complaint “unexpected and disappointing”. “We have made significant investments over the past two years to ensure we do not have US users active on our platform,” the exchange said.
The CFTC in its complaint cited internal communications that it said showed Binance knew the platform facilitated potentially illegal activities.
According to the complaint, in one instance in 2019, it received information “regarding Hamas transactions”. An employee allegedly dismissed the risk, saying: “Can barely buy an AK-47 with 600 bucks.”
As of June 2020 — a year after imposing new controls — 17.8% of Binance customers were located in the US, the complaint said.
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