CFTC sues Binance and CZ two days ago. Binance’s actions are characterized by CFTC as willful evasion of U.S. law. There are a lot of juicy details in this lawsuit. It’s worth a read but here are some excerpts from the complaint:
Defendants have disregarded applicable federal laws while fostering Binance’s U.S. customer base because it has been profitable for them to do so. For example, according to Binance’s own documents for the month of August 2020 the platform earned $63 million in fees from derivatives transactions and approximately 16% of its accounts were held by customers Binance identified as being located in the United States. By May 2021, Binance’s monthly revenue earned from derivatives transactions increased to $1.14 billion. Binance’s decision to prioritize commercial success over compliance with U.S. law has been, as Lim paraphrased Zhao’s position on the matter, a “biz decision.”
Internally, Binance officers, employees, and agents have acknowledged that the Binance platform has facilitated potentially illegal activities. For example, in February 2019, after receiving information “regarding HAMAS transactions” on Binance, Lim (their chief compliance officer at the time) explained to a colleague that terrorists usually send “small sums” as “large sums constitute money laundering.” Lim’s colleague replied: “can barely buy an AK47 with 600 bucks.” And with regard to certain Binance customers, including customers from Russia, Lim acknowledged in a February 2020 chat: “Like come on. They are here for crime.” Binance’s MLRO agreed that “we see the bad, but we close 2 eyes.”
In or around October 2020, Binance underwent a compliance audit to satisfy a request from Paxos. But according to Lim, Binance purposely engaged a compliance auditor that would “just do a half assed individual sub audit on geo[fencing]” to “buy us more time.” As part of this audit, the Binance employee who held the title of Money Laundering Reporting Officer (“MLRO”) lamented that she “need[ed] to write a fake annual MLRO report to Binance board of directors wtf.” Lim, who was aware that Binance did not have a board of directors, nevertheless assured her, “yea its fine I can get mgmt. to sign” off on the fake report. Around the same time as the referenced “half assed” compliance audit, in November 2020 the MLRO exclaimed to Lim in a chat, “I HAZ NO CONFIDENCE IN OUR GEOFENCING.”
In addition to the entities that operate the Binance platform, Zhao is the direct or indirect owner of entities that have engaged in proprietary trading activity on the Binance platform, including Merit Peak Limited and Sigma Chain AG, and Zhao is also the direct or indirect owner of approximately 300 separate Binance accounts that have engaged in proprietary trading activity on the Binance trading platform. (Basically, CZ/Binance are trading against its customers.)
I don’t know how CFTC got all the chat logs and internal documents but Binance looks bad. At the same time, I am not surprised. Binance has always been a pretty shady organization. They probably don’t want to be fully compliant because the derivative business is so profitable for them and their offering like perpetual contracts are illegal in the USA. I can give them the benefit of doubt for the derivative trading stuff but the money laundering stuff is super shady and can get them into big big trouble. I believe the US government is trying to break up with the crypto world after Luna and FTX. (Who can blame them?) But it appears there’s a very strong dark force to support shady organizations like Binance because criminals want to find a way to move money around and public blockchains are not really that anonymous any more. I hope this Binance crackdown will be swift and complete. Otherwise, criminals will quickly find other ways to get around the restrictions.