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The Commodity Futures Trading Commission (CFTC) filed a civil complaint against Binance, the world's largest cryptocurrency exchange, on Monday, March 27, alleging that the company violated regulations and aided American customers in evading compliance controls. The complaint, filed in federal court in the Northern District of Illinois, charges Binance and its founder Changpeng Zhao with violating the Commodity Exchange Act and CFTC rules that govern crypto derivatives like futures. Additionally, Samuel Lim, the firm's former chief compliance officer, was also charged.
Although Binance's offshore exchange is not officially accessible to US residents due to the offering of prohibited financial products, the exchange's trading volumes surpass those of its competitors by a large margin. To address compliance and regulatory concerns, Binance claims to have invested significantly in its compliance staff, which has grown from 100 to 750 members, including individuals with law enforcement and regulatory experience. Furthermore, the company states that it has spent substantial resources on third-party compliance assistance.
The civil complaint alleges that Binance allowed users to trade on its platform without verifying their identities, disregarding the requirement to do so. The CFTC claims that the company failed to implement essential compliance procedures to prevent terrorist financing and money laundering. Additionally, regulators accuse Binance of aiding US customers in using its offshore site by instructing them to utilize virtual private networks (VPNs) to mask their IP addresses and access restricted websites. The CFTC contends that Zhao orchestrated this practice and instructed employees to destroy evidence of their involvement in helping investors bypass controls.
The arrest of a prominent crypto-founder for fraud and the SEC filing a complaint against eight celebrities for failing to disclose their compensation for promotions are examples of the mounting regulatory pressure faced by the crypto industry. Binance has been under investigation by the Justice Department, and although it does not indicate imminent charges, experts suggest that the probe may involve potential violations of the Bank Secrecy Act, which requires financial institutions to report suspicious activities, including tax evasion and money laundering.