The world’s largest crypto exchange – Binance was on the receiving end of a lawsuit filed by the US Federal regulatory agency – for violating a large range of regulations.
The Commodities and Futures Trading Commission (CFTC) accused CEO Changepeng Zhao (CZ) and the company of the following:
1. According to the complaint by CFTC, Binance facilitated trades and accepted orders which involved multiple digital assets for users in the United States, and these assets have been deemed commodities by the agency.
According to the regulator, some of those commodities include, Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC). Although agencies have come to a wide agreement that Bitcoin is a commodity, the Securities and Exchange Commission (SEC) has suggested on numerous occasions referring to Ethereum being a security instead.
Moreover, (except through the separate and independent firm Binance US), Binance is not allowed to serve its customers based in the US, it has been alleged by the CFTC that Binance’s presence in the country has gradually increased over time – especially “VIP” customers.
As reported by the CFTC, CZ and the exchange ignored those requirements, despite knowing it would place regulatory and registration requirements on them and assisted customers in bypassing the access controls of the firm.
However, Binance’s disregard for such laws has been profitable to the platform: as it generated revenue worth $1.14 billion from derivatives transactions in May 2021 alone. Furthermore, the exchange identified about 16% of its accounts as being located in the United States.
2. Binance was accused of using and encouraging different methods to escape regulatory requirements. One of which is failing to establish a fixed headquarters in one location to avoid being subject to the laws of that particular area.
3. It is alleged that Binance and its employees have encouraged its US-based customers to make use of virtual private networks (VPNs) which will enable them to escape KYC controls thereby violating the law, and also for its VIP customers based in the US to open accounts under shell companies helping them evade compliance controls.
4. Lastly, Binance was accused by the CFTC of failing to implement the controls that would prevent illicit finance.
The CFTC has proposed penalties which include a ban on trading and registration, disgorgement, and pre-and post-judgment interest as punishment for Binance’s violations.
It was reported by CNBC, that Binance has also helped Chinese customers make use of its platform while escaping KYC and AML rules, although crypto has been banned entirely within its borders.
Featured Image Source: CryptoPotato
