Binance sued by US watchdog over registration rules

A US financial regulator has accused Binance and its chief executive Changpeng Zhao of operating illegally in the country, in the latest blow to the world’s largest crypto trading exchange.

The Commodity Futures Trading Commission alleged in a civil complaint filed on Monday 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.

The regulator also charged Samuel Lim, Binance’s former chief compliance officer, with aiding and abetting the alleged violations.

“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, filed in a federal court in Chicago, is the latest scrape between the world’s largest 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 service 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 did not immediately respond to a request for comment. Following the CFTC’s filing, Zhao wrote “4” on Twitter, de facto code to his followers instructing them to “ignore” fake news and attacks.

Earlier this year US financial crime watchdog FinCEN listed Binance as a counterparty to Bitzlato, another crypto exchange whose founder was charged with transmitting more than $700mn in illicit cryptocurrency funds that fell foul of US money-laundering regulations.

The US Securities and Exchange Commission has also opposed Binance US’s proposed acquisition of the assets of US-based Voyager Digital, a crypto lender that fell into bankruptcy last year.

The CFTC in its complaint described the platform as the “world’s largest centralised digital asset exchange, emerging through an opaque web of corporate entities, all of which are ultimately controlled by Zhao”.

Binance’s US affiliate, Binance US, licenses its technology but remains operationally independent, according to the company. However, there are links between the two, including the fact that Zhao is ultimate beneficial owner of Binance US.

Lim was Binance’s chief compliance officer until early 2022, after which Binance placed him on paid administrative leave, the CFTC said. He remains a company employee, according to the regulator.

The CFTC alleged Zhao and Binance’s senior management “have actively facilitated violations of US law”, including by instructing customers in the US to evade the company’s “purported” compliance controls by directing them to use virtual private networks to shield their location.

In 2019, Lim told Zhao that a “huge number” of customers in a particular Binance category “could be US citizens in reality. They have to get smarter and VPN through non-US IP,” according to a chat message quoted in the CFTC complaint.

The CFTC is seeking remedies including monetary penalties, registration and trading bans as well as disgorgement.