US CFTC Sues Crypto Exchange Binance Over Violations of Derivatives Regulations

On Monday, March 27, the U.S. Commodities and Futures Trading Commission (CFTC) sued crypto exchange Binance and its chief executive officer Changpeng Zhao over allegations of violating the American derivative rules.

In its lawsuit, CFTC said that Binance failed to register with the agency years ago and continues to break the regulatory rules. Gretchen Lowe, chief counsel in the CFTC’s enforcement division, said: “The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law”.

This is a major development as the US regulators continue their crackdown on crypto firms operating in the country without sparing giants like Coinbase and Binance. CFTC has accused Zhao and other senior executives at Binance of encouraging American customers to user virtual private networks (VPNs) and obscure their locations.

Furthermore, CFTC alleges that Binance also directed “VIP customers” from the US, majorly institutional investors, to open Binance accounts under the name of shell companies.

The derivatives regulator also pointed out Binance’s failure to implement effective anti-money laundering checks and not keeping necessary safeguards in ensuring customers’ identity. “Defendants have disregarded applicable federal laws while fostering Binance’s U.S. customer base because it has been profitable for them to do so,” the CFTC said in its complaint.

Binance responded to CFTC’s actions and charges calling them “unexpected and disappointing”. The crypto exchange said that they have made significant investments over the past two years ensuring that they do not have US users active on their platform. Besides, Binance added that they have expanded their compliance team and set heavily to strengthen surveillance.

In the blog post later on Monday, Binance chief Changpeng Zhao stated that the CFTC’s complaint “appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint”. Zhao added that he has been strictly observing Binance’s policies.

However, the Binance spokesperson has assured that they would continue to engage with the regulators in the US and across 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 said. 

Alike Binance, Coinbase has also been recently caught in the regulatory crossfire with the US SEC issuing a Wells Notice stating that the exchange violated US securities laws.