Binance at risk of being fined hundreds of millions of dollars

If you live in the U.S., you are not permitted to trade cryptocurrency derivatives. And if you are a large international platform for trading cryptocurrency derivatives, you cannot allow Americans to trade those products unless you are registered with the U.S. Commodity Futures Trading Commission (CFTC).

On March 27, the CFTC filed a lawsuit against Binance, the world's largest cryptocurrency exchange, for the reasons mentioned above.

The CFTC alleges that CEO Changpeng Zhao (also known as CZ) and his cryptocurrency empire failed to register with the agency and repeatedly violated US derivatives rules while developing Binance into the world's largest trading platform.

In addition, Binance "instructed its employees and customers to avoid compliance measures in order to maximize the company's profits," according to the CFTC.

Binance also failed to implement an effective anti-money laundering program and did not establish necessary safeguards to verify the true identities of its customers, the CFTC alleged.

World - Binance faces the risk of hundreds of millions of dollars in fines. — Binance CEO Changpeng Zhao. Photo: Fox News

Binance documents show that the platform earned $63 million in fees from derivatives trading in August 2020, and approximately 16% of accounts on the platform were identified as belonging to US customers, according to the CFTC.

Additionally, Binance's former compliance director Samuel Lim and other senior executives are accused of "failing to properly oversee Binance's operations" and, as a result, "actively facilitating violations of U.S. law," such as instructing U.S. customers to use virtual private networks (VPNs) to conceal their locations, and instructing U.S.-linked "VIP clients" (typically market participants) to open Binance accounts under the names of shell companies.

On March 27, CZ tweeted the number “4,” implying a reminder for people to ignore FUD (fear, uncertainty, and doubt), fake news, and attacks.

Meanwhile, a Binance spokesperson said, “This lawsuit came as a surprise and is quite disappointing for us, as we have been working with the CFTC for over two years. However, we will continue to work with regulators in the US and around the world to develop a clear and comprehensive regulatory framework.”

Binance has long argued that the exchange is not compliant with US law because it does not have a US headquarters. CZ has previously stated that the company's headquarters are wherever he is, at any given time.

According to the CFTC, this “reflects a deliberate approach to attempting to circumvent regulation.” The CFTC cannot bring criminal charges, but can impose heavy fines, or even ban Binance from registering in the US in the future.

World - Binance risks hundreds of millions of dollars in fines (Figure 2). — The U.S. Commodity Futures Trading Commission (CFTC) accuses Binance of intentionally violating U.S. law. Photo: CoinDesk

According to Timothy Cradle, an expert at Blockchain Intelligence Group, Binance could face hundreds of millions of dollars in fines and be banned from registering a derivatives exchange in the future. This would be a "fatal blow" to their users in the US and significantly impact Binance's revenue.

Since 2021, the CFTC has been investigating Binance regarding whether the exchange is preventing Americans from trading cryptocurrency derivatives. The CFTC is just one of several U.S. agencies investigating Binance's practices.

The U.S. Internal Revenue Service (IRS) and U.S. federal prosecutors have examined Binance's compliance with anti-money laundering rules. Additionally, the U.S. Securities and Exchange Commission has also scrutinized whether Binance supports trading in unregistered securities .

Nguyen Tuyet (Based on CNN, Bloomberg, The Verge)

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