Binance CEO slams ‘incomplete’ civil legal charges from US market regulator

The CEO of crypto trading platform Binance has labelled civil legal charges filed by the US market regulator as ‘incomplete’ this morning, noting that the action was ‘unexpected and disappointing’.

Binance CEO and co-founder Changpeng Zhao’s comments come after the Commodity Futures Trading Commission (CFTC) announced it launched a civil enforcement action in the US District Court for the Northern District of Illinois, charging the CEO and three entities that operate the crypto trading platform with ‘numerous’ violations of the Commodity Exchange Act (CEA) and CFTC regulations.

The complaint also charges Binance former chief compliance officer (CCO) Samuel Lim with aiding and abetting the firm’s alleged violations.

The CFTC alleges that Binance Holdings Limited, Binance Holdings (IE) Limited and Binance (Services) Holdings Limited operate the centralised digital asset trading platform through ‘an intentionally opaque common enterprise, with Zhao at the helm’.

“The defendants allegedly chose to knowingly disregard applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit,” CFTC said in a statement.

“In its continuing litigation against the defendants, the agency seeks disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations, as charged.”

The regulator alleged that Binance’s compliance program had been ineffective and that, at Zhao’s direction, the company instructed its employees and customers to circumvent compliance controls in order to boost profits.

The complaint claimed that Binance - which operates in Australia under the name Binance Australia - did not require its customers to provide any identity-verifying information before trading on the platform, despite a legal duty to collect such details, and that it failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering.

Further, it was alleged that after Binance purported to restrict US customers from trading on its platform, the group instructed its customers on the best methods for evading those compliance controls.

Other allegations include that the entities failed to diligently supervise Binance’s activities as a futures commission merchant (FCM).

Zhao and Lim were specifically charged with willful evasion of the requirements of the CEA, including allegations that the defendants conducted certain activities outside of the US in order to avoid CFTC regulation.

Lim was also charged with wilfully aiding and abetting Binance’s violations through intentional conduct that undermined Binance’s compliance program, and with conducting activities to wilfully evade applicable provisions of the CEA.

This includes allegations that the former CCO used ‘creative means’ to assist customers in circumventing Binance’s compliance controls and implementing a corporate policy that instructed US customers to access the trading facility through a virtual private network to avoid IP-based controls, or to create ‘new’ accounts through off-shore shell companies.

CFTC chairman Rostin Benham said the action demonstrated that there was 'no location…that will prevent the CFTC from protecting American investors'.

“I have been clear that the CFTC will continue to use all of its authority to find and stop misconduct in the volatile and risky digital asset market,” Benham said.

“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of US 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.”

CFTC enforcement division principal deputy director and chief counsel Gretchen Lowe said that Binance’s compliance efforts were a ‘sham’, and alleged that the company 'deliberately chose - over and over - to place profits over following the law'.

“Today’s enforcement action reflects that the CFTC and its Enforcement Division will pursue those digital asset platforms and individuals who flout and actively attempt to circumvent CFTC regulatory requirements,” Lowe said.

Binance’s Zhang does not appear to be going down without a fight, issuing his own stern rebuttal shortly after CTFC launched its case which the CEO labelled as ‘unexpected and disappointing’.

“Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization [sic] of many of the issues alleged in the complaint,” Zhang said.

The CEO said Binance's compliance systems were up to scratch, noting he was not aware of any other company ‘using systems more comprehensive or more effective than Binance’.

He also sang the praises of the company’s more than 750 team members in compliance teams across Binance.

“Binance is committed to transparency and cooperation with regulators and law enforcement — in the US and globally,” Zhang said.

“To date, we have handled 55,000-plus LE requests, and assisted US LE freeze/seize more than $125 million in funds in 2022 alone and $160 million in 2023 so far.”

The CEO added that the company did not trade for profit or ‘manipulate’ the market, rather the company only trades on the platform in order to convert revenues in crypto from time to time to cover expenses.

“We have affiliates that provide liquidity for less liquid pairs. These affiliates are monitored specifically not to have large profits,” Zhang said.

“Personally, I have two accounts at Binance: one for Binance Card, one for my crypto holdings. I eat our own dog food and store my crypto on Binance.com. I also need to convert crypto from time to time to pay for my personal expenses or for the card.

“Binance.com has a 90 day no-day-trading rule for employees, meaning you are not allowed to sell a coin within 90 days of your most recent buy, or vice versa. This is to prevent any employees from actively trading. We also prohibit our employees from trading in futures. Further, we have strict policies for anyone with access to private information, such as details of listings, Launchpad, etc. They are not allowed to buy or sell those coins.”

Zhang said that he observes these policies himself and that he uses the bulk of his time to build and improve on the platform.

“At Binance, we look for amicable solutions to all problems. We are collaborative with regulators and government agencies all around the world. While we are not perfect, we hold ourselves to a high standard, often higher than what existing regulations require,” Zhang said.

“And above all, we believe in doing the right thing by our users at all times. In this journey towards freedom of money, we do not expect everything to be easy. We do not shy away from challenges.”