Feds Charge Binance With Helping Crypto Traders to Avoid Company’s Own Compliance Controls

The Commodity Futures Trading Commission filed a civil enforcement action Monday against Binance and founder Changpeng Zhao and Samuel Lim, the former chief compliance officer of Binance, charging the crypto trading platform with deliberately disregarding “applicable provisions of the CEA (Commodity Exchange Act) while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”

“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance,” said CFTC Chairman Rostin Behnam. “This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law. I applaud the diligent and dedicated work of the CFTC’s Enforcement team in bringing this action, and for their hard work in addressing illegal operations in the digital asset space.”

According to the complaint, Binance, functioning as futures commission merchants (FCMs), executed commodity derivatives transactions for U.S. customers without requiring them to provide any identity-verifying information in compliance with federal rules intended to prevent and detect terrorist financing and money laundering. The complaint alleges that Binance purported to restrict U.S. customers from trading on its platform but in reality it helped U.S.-based VIP customers to evade Binance’s compliance controls. Investigators found that Binance instructed employees to communicate with U.S.-based customers about control evasion using a messaging application that automatically deleted written communications. According to the complaint, the reason Binance used that communication method was to avoid leaving any evidence of their efforts to retain U.S.-based customers.

The complaint further charges that Zhao and Lim intentionally structured the company and transactions to avoid registration requirements and by instructing customers how to evade Binance’s compliance controls. The civil action argues devised the “secret plot” to instruct U.S.-based VIP customers to evade Binance’s compliance controls and tell Binance employees to ensure all communications about their control subversion took place over applications that erased those communications, which otherwise would have been used as evidence against the company.

Lim, who was CCO of Binance from 2018 through 2022, is charged with intentionally undermining Binance’s compliance program by promoting the use of “creative means” to assist customers in circumventing Binance’s compliance controls, instructing Binance’s U.S. customers to access the trading facility through a virtual private network to avoid Binance’s IP address-based controls or create “new” accounts through off-shore shell companies to evade Binance’s KYC (Know Your Customer) controls.

Peter Page is the Contributions Editor at Grit Daily. Formerly at Entrepreneur.com, he began his journalism career as a newspaper reporter long before print journalism had even heard of the internet, much less realized it would demolish the industry. The years he worked a police reporter are a big influence on his world view to this day. Page has some degree of expertise in environmental policy, the energy economy, ecosystem dynamics, the anthropology of urban gangs, the workings of civil and criminal courts, politics, the machinations of government, and the art of crystallizing thought in writing.

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