- Binance and its founder Changpeng Zhao are preparing to seek the dismissal of March’s CFTC complaint
- Binance faces a potential U.S. ban and substantial fines if found guilty
- Zhao is accused of “long-running failure to act in good faith” in regard to Binance’s misconduct
Binance and its founder, Changpeng Zhao, are preparing to request the dismissal of a Commodity Futures Trading Commission (CFTC) complaint. Reuters claims that the world’s largest cryptocurrency exchange is set to formally deny the plethora of claims against it after Zhao said on Twitter in the wake of the claims that the allegations were false. In March the CFTC accused the exchange of violating the Commodity Exchange Act and related federal regulations, alleging it operated an “illegal” exchange with a questionable compliance program, allegations which Zhao said amounted to an “incomplete recitation of facts.”
CFTC Filed Charges in March
Binance is scheduled to submit its response to the CFTC complaint on July 27 and intends to seek dismissal, according to Reuters. The CFTC’s lawsuit claims that Binance conducted commodity derivatives transactions on behalf of U.S. individuals, contravening U.S. laws.
The agency has accused the company of willfully evading federal law and engaging in regulatory arbitrage, with charges including operating a futures exchange for U.S. citizens without proper registration, not adequately preventing potential money laundering, and lacking effective KYC/AML processes. Binance faces the possibility of a U.S. ban and substantial financial penalties, which could amount to tens of billions of dollars in fines and restitution.
Zhao Charged Personally
Zhao himself has been accused of a “long-running failure to act in good faith” regarding the exchange’s misconduct. He is held responsible for various charges, suggesting he was either aware of or orchestrated the wrongdoing.
The charges against him include directing Binance employees and U.S. customers to hide their locations using virtual private networks. Zhao is also alleged to have conducted “proprietary trading activity” through approximately 300 Binance accounts.
‘Non Guilty’ Plea Was Telegraphed
The day the charges hit, Zhao called the charges against the company “unexpected and disappointing,” given that the company has allegedly been “working cooperatively with the CFTC for over two years.” He also claimed that Binance does not engage in market manipulation, although the company allows trading in certain situations, such as for covering expenses or providing liquidity for less liquid pairs.
Zhao didn’t outright deny all the charges laid at his, Lim’s and Binance’s respective doors, instead pointing to the positive work Binance has done in the areas in which they have been accused of transgression. In the area of U.S. compliance, Zhao said that the company has developed advanced technology to ensure compliance with KYC and AML regulations, including the implementation of a mandatory KYC program and blocking of U.S. users through various means, such as by nationality, IP, mobile carrier, device fingerprints, bank deposits and withdrawals, blockchain deposits and withdrawals, and credit card bin numbers.
Binance and Zhao also face legal action from the U.S. Securities and Exchange Commission (SEC), which filed a suit in June, accusing them of operating a “web of deception.” The SEC listed 13 charges against Binance, Zhao, and the operator of its purportedly independent U.S. exchange. It is also suspected that Binance is under investigation by the Justice Department for potential involvement in money laundering and sanctions violations, but charges are yet to arrive on this matter.
