Lawsuit Has Been Filed Against Binance and CEO Zhao Over the Evasion of US Law
The U.S. Commodity Futures Trading Commission (CFTC) sued crypto exchange Binance and its founder, Changpeng Zhao, for allegedly violating federal law in the US. CFTC alleged Binance that company knowingly offered unregistered crypto derivatives products in the U.S.
On Monday, the lawsuit was filed in the U.S. District Court for the Northern District of Illinois. The lawsuit alleged that Binance operated a derivatives trading operation in the U.S., offering trades for cryptocurrencies including bitcoin (BTC), ether (ETH), litecoin (LTC), tether (USDT), and Binance USD (BUSD), which the suit referred to as commodities. The suit also claimed, Binance also directed its employees to lie about their locations using a virtual private network (VPN).
Some of the allegations made by the CFTC against Binance include: offering illegal off-exchange commodity options, failing to register as a futures commissions merchant, designated contract market, or swap execution facility, poorly supervising its business, not implementing know-your-customer or anti-money laundering processes, and having a poor anti-evasion program.
The immediate effect of this lawsuit was reflected in the price of Bitcoin (BTC). Its price plunged by $1000 just one hour after this suit was filled. While crypto-related stocks also fell after the suit was published, Binance’s exchange token BNB also fell by 3% immediately.
According to allegations made by the CFTC, the global exchange of cryptocurrency, Binance’s US affiliate Binance.US, created a system to hide its true reach and operations.
In a press brief, CFTC Chief Counsel Gretchen Lowe described Binance’s move as willful evasion of U.S. law. He has pointed out some internal chats and emails as well.
Furthermore, this suit also alleged that Binance directed its US-based customers to use a variety of methods to overcome restrictions on crypto in America.
“Binance has instructed U.S. customers to evade such controls by using [virtual privacy networks] to conceal their true location,” the suit alleged. “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 company directed important customers such as trading firms to set up shell companies in places such as Jersey, the British Virgin Islands, and the Netherlands to avoid restrictions, the filing said, to escape restrictions, and was fully aware of the scale of its U.S. business.
“Binance knew that U.S. customers continued to comprise a substantial proportion of Binance’s customer base,” the filing said, citing internal monthly reports sent to Zhao, which said that, even as of June 2020, after controls had supposedly been implemented, 17.8% of customers were based in the U.S.
In the same way, a spokesperson for Binance said, defending the company, “”made significant investments over the past two years to ensure we do not have U.S. users active on our platform”. The spokesperson claimed that Binance has grown its compliance team from 100 to 750 people. The company has been investing $80 million on compliance, including KYC verification.
“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 said.
The spokesperson for the company insists that Binance now maintains the country blocks for anyone who is a resident of the U.S. He said Binance blocks U.S. citizens regardless of where they currently reside. The exchange also blocks U.S. cell phone providers and IP addresses, as well as U.S. bank accounts, he claimed.
