Binance and its CEO were surprised by the CFTC lawsuit

The CFTC lawsuit alleges that Binance allowed US customers to trade derivatives without being registered with the agency. Binance has stated that it is committed to complying with all applicable laws and regulations. 

The U.S. Commodities and Futures Trading Commission’s (CFTC) decision to sue Binance on Monday reportedly caught Chief Executive Changpeng Zhao off guard. The company, which has avoided setting up a permanent headquarters for years, has been in contact with the American and other regulators about how to operate legally in the more than 100 jurisdictions it serves. 

The CFTC requested that an Illinois court impose monetary fines on the exchange and enjoin it from registering and trading in the US, alleging that the crypto-giant had violated eight provisions of the Commodity Exchange Act. The CFTC’s accusations have been refuted by Binance.

The Business Insider wrote on how “Binance and its boss, CZ, are being sued by US regulators on seven allegations from the CFTC’s lawsuit,” which states how Binance encouraged its US based customers to use VPNs and other illicit activities involving terrorist groups

Numerous private messages from Binance’s CEO and its former chief compliance officer are cited in the CFTC complaint to demonstrate the company had a deliberate strategy to thwart regulators. For instance, the company encouraged American customers to use VPNs to conceal their locations and hosted a party in Las Vegas for important U.S. clients. 

Apart from that, there are scathing texts from Binance executives, such as “We see the bad, but close 2 eyes” and Like, Come on! They are here to commit crimes. Additionally, it demonstrates Binance was aware that terrorists from Hamas used its platform for small transactions despite the fact that they “can barely buy an AK-47 with 600 dollars.”

The lawsuit against Binance and its CEO, CZ, alleges that they encouraged US-based customers to use VPNs and engage in illicit activities involving terrorist groups. The scathing texts from Binance executives and the knowledge that terrorists from Hamas used their platform for small transactions further demonstrate the severity of the allegations. (Glover, 2023). 

According to a spokesperson for the exchange, efforts have been made to prevent US citizens from trading on the exchange over the past two years by investing $80 million and hiring 650 compliance staff to assist with transaction monitoring, “know your customer” regulations, and other compliance initiatives. (Glover, 2023) 

The allegations against Binance and its CEO, CZ, are serious and could have significant consequences for the company. It remains to be seen how the lawsuit will play out, but it is clear that Binance will need to take steps to address these concerns if it hopes to maintain its reputation and avoid further legal trouble. 

Although the messages from Russia and Hamas make Binance appear dubious, the core of the lawsuit isn’t regarding criminal activity. Yes, Binance occasionally turned a blind eye to bad actors (again, not good! ), but the American clients in particular—large trading firms in New York and Chicago that were some of Binance’s biggest clients—are what the CFTC is most upset about. 

The main complaint, according to Matt Levine, “is about cutting off a big international crypto exchange from big, sophisticated proprietary market-making firms in the U.S.” (Murray and Wynn, 2023)

The CFTC’s filing was unexpected in some ways. There have been rumors that lawsuits are being prepared by the Securities and Exchange Commission, Internal Revenue Service, and U.S. Department of Justice for a range of corporate misdeeds. 

When the United States sanctioned the Russian cryptocurrency exchange Bitzlato, officials there noted that Binance was a significant counterparty for darknet markets. Even if only to further muddy the waters as to whether ether (ETH) and other cryptocurrencies are securities or commodities, it is surprising that the CFTC dropped the first shoe. 

These developments highlight the need for greater regulatory oversight of the cryptocurrency market, which has been largely unregulated and prone to abuse. It remains to be seen how these legal actions will impact the industry and whether they will lead to more stringent regulations in the future. 

It is crucial for the cryptocurrency industry to establish a clear regulatory framework that can protect investors and prevent illicit activities. As more countries and regulators start to take action against crypto-related crimes, it is likely that the industry will face increased scrutiny and pressure to comply with existing laws and regulations. 

References:

Kuhn, D. (2023) How Bad Is the Binance Suit?. How Bad Is the Binance Suit?. Available at: <https://finance.yahoo.com/news/bad-binance-suit-171336570.html>. Accessed 29 March 2023.

Murray, S. and Wynn, S. (2023) The U.S. drops the hammer on Binance: What it means and what we still don’t know. Fortune Crypto. Available at: <https://fortune.com/crypto/2023/03/28/the-u-s-drops-the-hammer-on-binance-what-it-means-and-what-we-still-dont-know/>. Accessed 29 March 2023.

Glover, G. (2023) Binance and its boss CZ are being sued by US regulators. Here are 7 staggering allegations from the CFTC’s lawsuit. Markets Insider. Available at: <https://markets.businessinsider.com/news/currencies/binance-lawsuit-changpeng-zhao-cz-cftc-crypto-crackdown-allegations-explained-2023-3>. Accessed 29 March 2023.