US regulators launch legal action against crypto giant Binance alleging they broke US money laundering laws

- March 28, 2023 2 MIN READ
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The US Commodity Futures Trading Commission (CFTC) has launched a suit against the world’s biggest cryptocurrency exchange Binance, claiming the company was deliberately skirting local regulation and knowingly facilitated the illicit flow of money.

In a complaint against Binance, its founder Changpeng Zhao, and chief compliance officer Samuel Lim, the CFTC alleged the Binance team “actively facilitated violations of US law” including by instructing its US-based customers on how to circumvent compliance controls.

Binance has never registered with the CFTC for the purpose of derivatives trading.

“Binance and its officers, employees, and agents have instructed US customers to use virtual private networks (VPNs) to obscure their location,” the complaint said.

Binance under Zhao’s leadership also let customers keep using the platform even if they hadn’t followed ‘know your customer’ obligations and allowed select US customers “to open Binance accounts under the name of newly-incorporated shell companies to evade Binance’s compliance controls”.

Even though it hasn’t registered with the CFTC, Binance failed to block US customers from accessing its services – in fact, the CFTC argues, Binance “purposefully grew, maintained and simultaneously concealed its US customer base”.

At the same time, it was also “failing to implement an effective AML [anti-money laundering] program that is required of financial institutions” to stop terrorist or other criminal activity.

The complaint alleges Binance’s employees and senior management were well aware that it had a hand in moving money around for organised crime and designated terrorist organisations.

Internal messages quoted by the CFTC describe an instance where Lim, the chief compliance officer, says of some Russian customers “they are here for crime” with another employee replying “we see the bad but we close 2 eyes”.

When an employee found a particularly dodgy account that was “very closely associated with illicit activity” – it had more than US$5 million from “questionable services” – they asked Lim if it was an instance “where we would want to advise the user that they can make a new account”.

Lim’s response was to tell the user “to be careful with his flow of funds” and that “he can come back with a new account” but the existing account “has to go, it’s tainted”.

According to the CFTC claim, Binance has also been trading on its own platform using around 300 ‘house accounts’ including some owned by Zhao. Binance has allegedly avoided any attempts to audit or scrutinise these accounts for evidence of insider trading.

The claim tries to show how closely tied Zhao is to the business’ operations, pointing out that in January 2021 – a month in which the company earned US$700 million in revenue – he personally approved a US$60 expense claim for office furniture.

Zhao, who goes by the name CZ, is one of the crypto world’s biggest names. It was his tweets about competitor FTX that facilitated its collapse.

In his response to the CFTC claim, Zhao described it as “an incomplete recitation of facts.”

He said the company “has developed best-in-class technology to ensure compliance” and blocks US users using a range of different methods.

Zhao also talked up how Binance holds “the highest number of licences/registrations globally.”

Regarding the allegations of potential insider trading and market manipulation, Zhao said the company “does not trade for profit or ‘manipulate’ the market under any circumstances.”