The Commodities and Futures Trading Commission (CFTC) announced that it has filed a civil enforcement action suit against Binance, the crypto exchange platform, its CEO Changpeng Zhao and three other entities that operate the platform. Filed at the federal high court in Chicago, the suit claims that the entities violated numerous Commodity Exchange Act (CEA) and CFTC regulations. 
 

The entities involved are Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited (together, Binance).
 

Information from the lawsuit states that Binance has solicited and accepted orders and operated a centralized digital asset trading platform alongside several other corporate vehicles through a willfully opaque common enterprise. The complaint also charges Samuel Lim, Binance’s former chief compliance officer with “willful and substantial assistance” of these violations.
 

With respect to the violations, the agency seeks:

• Civil monetary penalties
• Disgorgement
• Permanent trading and registration bans
• A permanent injunction against further violations of the CFTC and CEA regulations as charged.
   

Commenting on the situation, CFTC chairman Rostin Behnam said: 

“Today’s enforcement action demonstrates that there is no location, or claimed lack of 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,”
 

“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 U.S. 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.” he added
 

Shortly after the lawsuit became public, Binance's CEO tweeted the number "4" over from his account, which refers to an earlier goal for 2023 he has pinned to the top of his profile, "Ignore FUD, fake news, attacks, etc."
 

Zhao has rejected the allegations against him. 
 

A spokeswoman for Binance mentioned that the lawsuit was;

"unexpected and disappointing," stating that Binance has worked "collaboratively with the CFTC for more than two years." She said it has made significant investments to ensure "we do not have U.S. users active on our platform," raising its compliance team to 750 from 100 and spending $80 million to bolster its compliance programs.
 

Gretchen Lowe, CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel added: 
 

“Defendants’ alleged willful evasion of U.S. law is at the core of the Commission’s complaint against Binance. The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance 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. I thank the Enforcement team for their dedication and hard work in bringing this action.”
 

Binance Compliance Problems

In the complaint, Binance offered and executed commodity derivatives transactions to and for persons in the US between July 2019 and the present. It also claims that Binance’s compliance program has been ineffective and the company instructed employees and customers to circumvent compliance controls at Zhao’s direction to maximize corporate profits. 
 

The complaint charges that for much of the relevant period, Binance did not require its customers to provide any identity-verifying information before trading on the platform, despite the legal duty that entities like Binance functioning as futures commission merchants (FCMs) collect such information, and failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering.
 

According to the complaint:
 

Binance's activities as a futures commission merchant (FCM), failed to collect identity-verifying information from its customers despite legal requirements to do so and did not implement basic compliance procedures to prevent terrorist financing and money laundering. 
 

Even after restricting U.S. customers from trading on the platform, Binance allegedly provided instructions to its U.S.-based VIP customers on evading compliance controls. Additionally, the complaint charges Binance with facilitating derivatives transactions without registering with the CFTC, and the entity defendants with failing to properly supervise Binance's activities. 
 

One example cited in the complaint is Binance's use of a messaging app with an auto-delete feature to instruct employees on evading controls, apparently to avoid leaving evidence of efforts to retain U.S.-based customers. The complaint also accuses Binance, Zhao, and Lim of intentionally structuring their entities and transactions to evade registration requirements and instructing U.S. customers as well as other customers as to how to evade Binance’s compliance controls in a bid to avoid CFTC regulations.