US Administration Continues Crypto Witch Hunt, CFTC Targets Binance

In what appears to be one more link in the chain for the US to release Central Bank Digital Currencies (CBDCs), the US Commodity Futures Trading Commission (CFTC) has filed suit against Binance and CEO Changpeng Zhao (“CZ” for trading violations, according to a Bloomberg report.

Binance, who is the largest international spot crypto exchange, has faced scrutiny from various US regulatory bodies. Apart from the Commodity Futures Trading Commission (CFTC), the exchange has been subject to investigations by the Internal Revenue Service and federal prosecutors. These investigations have focused on Binance’s compliance with Anti-Money Laundering (AML) regulations. Furthermore, the Securities and Exchange Commission has been investigating whether Binance permitted U.S. traders to access unregistered securities.

The lawsuit alleges that Binance conducted transactions involving Bitcoin (BTC), Ether (ETH), and Litecoin (LTC) for U.S. customers, despite its policy of blocking or restricting them, since at least 2019. The suit further asserts that Binance, along with its executives, deliberately flouted U.S. law. The complaint reads: “Binance, Zhao, and Lim, the platform’s former Chief Compliance Officer, have each known that Binance’s solicitation of customers located in the United States subjected Binance to registration and regulatory requirements under U.S. law.”

According to the lawsuit, Binance obscured the location of its executive offices, as well as the identities and locations of the entities operating the trading platform. The suit cites an internal Binance memo in which CZ, the CEO, stated that the policy was intended to “keep countries clean [of violations of law]” by “not landing .com anywhere. This is the main reason .com does not land anywhere.”

The CFTC, in the suit, stated that Binance employs at least 60 people in the United States, with that number continuing to grow. The exchange also holds U.S. trademarks and launched Binance.US in 2019.

The CFTC has made several accusations against Binance, including failing to register with the regulator and violating provisions of the Commodities Exchange Act and CFTC regulations. These violations include the failure to implement legally mandated Anti-Money Laundering and Know Your Customer (AML/KYC) controls.

Moreover, the defendants allegedly did not adequately supervise the company’s activities and willfully conducted activities beyond U.S. borders to evade the Commodities Exchange Act and other regulatory requirements. The lawsuit claims that Binance’s CEO, Zhao, and others used Signal, an encrypted messaging app with an auto-delete function, to communicate about business matters even after Binance received document requests from the CFTC and purportedly distributed document preservation notices to its personnel.

The lawsuit further alleges that Binance offered leverage to customers trading on the spot market and referred to two categories of products it offered as “futures” and “perpetuals” as swaps. The exchange also purportedly traded on its platform through approximately 300 “house accounts” directly or indirectly owned by Zhao, as well as through accounts owned by entities controlled by Zhao, without disclosing that activity to its customers.

This US administration hates Crypto because it wants to supplant existing digital currencies with CBDCs so as to have control over users…which it cannot through legacy cryptocurrencies. Fortunately the US congress is relatively crypto-friendly, and Florida Governor Ron DeSantis has thrown down the gauntlet on CBDCs.