by The Commodity Futures and Trading Commission filed a complaint against cryptocurrency exchange Binance, its co-founder Changpeng Zhao, and its former chief compliance officer Samuel Lim, alleging that Binance actively solicited US users and subverted the exchange’s own «ineffective compliance program.» according to a filing in Illinois federal court on Monday.
Just days before the CFTC filing, CNBC reported about how Binance employees worked to subvert the exchange’s compliance controls in China, using some of the same techniques the CFTC alleges Binance attracts US users.
The filing has the potential to change the operations of the exchange and is potentially just the first salvo in a regulatory crackdown on the world’s largest crypto exchange.
The regulator alleged that Binance, Zhao, and Lim violated eight fundamental provisions of the Commodity Exchange Law, including laws requiring controls “designed to prevent and detect money laundering and terrorist financing.”
Zhao and Lim allegedly «actively cultivated lucrative and commercially important ‘VIP’ clients, including institutional clients, located in the United States,» the complaint states.
Binance and Zhao took steps to deliberately hide where the exchange’s subsidiaries were located, the regulator said. This was part of a broader strategy that Zhao said was an effort to “keep countries clean,” the regulator alleged in the filing.
A key part of Binance’s alleged effort to generate fees and solicit US users was the exchange’s VIP program, for high net worth individuals, according to the CFTC filing.
“Binance is aware of the identities and geographic locations of its VIPs because Binance monitors their sources of transaction volume and fee-based income as a matter of course in conducting its operations,” the CFTC complaint alleges.
Binance VIPs were offered special privileges when law enforcement agencies hounded them or froze their assets, the CFTC alleged, alleging that Binance tipped off the VIPs or suggested they remove their assets from the platform.
“Do not directly tell the user to run,” Binance instructed its VIP team, the filing alleged. «Whether the user is a big trader or a smart one, they’ll get the hint.»
