The CFTC has sued Binance and its CEO over willful evasion of United States laws and offering unregistered crypto derivatives products.
The regulatory agency alleged that Binance directed its employees to spoof their locations through the use of virtual private networks.
Binance Charged With Evading US Laws
The United States Commodity Futures Trading Commission (CFTC) sued crypto exchange Binance and founder Changpeng Zhao on Monday.
According to the suit, Binance is accused of knowingly offering unregistered crypto derivatives products in the United States, a move that is against federal law.
The lawsuit was filed in the District Court for the Northern District of Illinois on Monday. The CFTC alleged that the cryptocurrency exchange operated a derivatives trading operation in the United States, offering its users trades for various cryptocurrencies, including, bitcoin (BTC), ether (ETH), litecoin (LTC), tether (USDT) and Binance USD (BUSD). The CFTC classifies these assets as commodities.
Furthermore, the CFTC claimed that Binance directed its employees to poof their locations through the use of virtual private networks (VPNs). The regulatory agency added that Binance failed to register as a futures commissions merchant, designated contract market or swap execution facility, a violation of federal law.
Furthermore, the CFTC accuses Binance of poorly supervising its business, not implementing know-your-customer (KYC) or anti-money laundering (AML) processes and having a poor anti-evasion program.
In the suit, the CFTC wrote;
“Binance’s reliance on a maze of corporate entities to operate the Binance platform is deliberate; it is designed to obscure the ownership, control, and location of the Binance platform. Zhao answers to no one but himself.”
CFTC Chief Counsel Gretchen Lowe described Binance’s actions as willful evasion of US law, referencing internal chats and emails. The suit further claimed that the cryptocurrency exchange directed its customers in the United States to use various ways to evade restrictions placed on US-based customers. The CFTC added that;
“Binance has instructed U.S. customers to evade such controls by using [virtual privacy networks] to conceal their true location. VPNs have the effect of masking an internet user’s true IP address. VPN use by customers to access and trade on the Binance platform has been an open secret, and Binance has consistently been aware of and encouraged the use of VPNs by U.S. customers.”
The regulatory agency alleged that Binance directed some of its clients, including trading firms, to set up shell companies in places such as Jersey, the British Virgin Islands and the Netherlands to evade restrictions.
Binance Doesn’t Have US Users Active On Its Platform
While commenting on the allegations, a Binance spokesperson said the cryptocurrency exchange had made significant investments over the past two years to ensure we do not have U.S. users active on our platform.
Binance.US is the United States arm of the cryptocurrency exchange, and the company said it complies with rules put in place by regulatory agencies. Binance added that it had grown its compliance team from 100 to 750 people and spent $80 million on KYC and other compliance vendors and tools.
The spokesperson added that;
"The complaint filed by the CFTC is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the U.S. and around the world. The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”
The spokesperson added that Binance maintains country blocks for people living in the United States and blocks anyone e who is identified as a U.S. citizen regardless of where they live in the world. The cryptocurrency exchange also blocks US cell phone providers and IP addresses, and also United States bank accounts.
Binance dropped by roughly $1,000 after the lawsuit was filed, dropping to $26,525 for the first time since March 17. However, Bitcoin is now trading at $27k again after the brief retreat.