Binance faces a ban in the United States after being sued by an American watchdog for breaking and ignoring a host of financial and market rules.
In a searing court filing, the Commodity Futures Trading Commission alleged that the world’s largest crypto trading platform had put its commercial success over compliance with US law in what it quoted company executives as saying was a “biz decision”.
It listed complaints including that Binance had helped its customers to evade its own controls, had actively grown its American customer base despite claiming that it was restricting it from the platform, and had failed to properly supervise its activities.
Binance deliberately chose not to have a global headquarters, the watchdog said, in order to avoid regulation. It cited Changpeng Zhao, 46, Binance’s chief executive, who is also being sued by the regulator, as saying its base was wherever he happened to be.
Binance — which could now be fined or banned from trading — described the complaint as “unexpected and disappointing”, adding: “The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”
The commission claimed Binance had refused to provide it with information, such as the address of Samuel Lim, its chief compliance officer, and had used messaging apps with autodelete functions, such as Signal, to cover its tracks “about inculpatory matters”.
According to the CFTC, “while acting as CCO, Lim advised, directed and assisted Binance employees and customers in circumventing compliance controls”.
In August 2020 the platform earned $63 million in fees from derivatives transactions; in May 2021, its monthly revenue from derivatives transactions had risen to $1.14 billion.
The company had “disregarded applicable federal laws while fostering Binance’s US customer base because it has been profitable for them to do so”, the regulator said. Customers were encouraged to obscure their location by using virtual private networks and it did not conduct the requisite identification checks.
To comply with US law, it should have registered with the commission and had these controls in place to prevent money laundering and terrorism financing.
The lack of controls around the crypto industry has been in the spotlight since the collapse last year of the FTX exchange, a rival to Binance.
A Binance spokesman said the complaint “is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the US and around the world.”
The CFTC’s lawsuit rattled market confidence in the wider crypto sector yesterday. Shares in Coinbase, the exchange, fell by $5.29, or 7.8 per cent, to close on $62.54 in New York.