An earlier version of this story incorrectly said the Commodity Futures Trading Commission filed its civil complaint against Binance on Wednesday. The complaint was filed Monday, March 27.
“For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance,” Rostin Behnam, the commission’s chairman, said in a news release announcing the civil complaint. “This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law.”
In a statement to The Washington Post, Binance said the CFTC’s allegations were “unexpected and disappointing,” as the company had been working with the agency for more than two years. “Nevertheless, we intend to continue to collaborate with regulators in the U.S. and around the world,” the company said. “The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”
The company added that it has made “significant investments” to ensure U.S. users cannot use its platform. Over the past two years, the company said, its compliance staff has grown from 100 people to 750 people, including 80 with law enforcement, regulatory and compliance experience. The company also said that it has spent heavily on third-party compliance assistance.
Though its offshore exchange is not officially available to U.S. residents, Binance far outstrips its peers, with trading volumes that outstrip the next several competitors combined, according to crypto analytics site CoinGecko.
Binance’s offshore exchange does not operate in the United States because it offers risky financial products, such as crypto derivatives, that are generally prohibited in the country. Binance operates a separate exchange for U.S. residents that offers a smaller menu of products.
Zhao is one of the most prominent figures in the cryptocurrency world. In November, his rivalry with disgraced FTX founder Sam Bankman-Fried came to a head when Zhao cast doubt on FTX’s stability, helping fuel a sell-off in the company’s tokens and setting off a chain of events that led to FTX’s collapse and criminal charges against Bankman-Fried.
Since FTX’s collapse, the crypto industry has faced mounting regulatory pressure. On Thursday, Do Kwon, a prominent crypto founder, was apprehended in Montenegro and later charged with fraud in the United States. The day before Kwon’s arrest, the Securities and Exchange Commission filed a complaint against eight celebrities, accusing them of failing to disclose their compensation for the promotions. In February, Kraken, a U.S.-based crypto exchange, settled charges with the SEC, agreeing to stop selling certain assets and pay a $30 million penalty.
The Justice Department has been probing Binance’s activities in recent months, issuing subpoenas to hedge funds who may have communicated with the firm, The Post reported in January. While the probe does not necessarily mean prosecutors will file charges, experts said that the investigation may involve possible violations of the Bank Secrecy Act, which requires financial institutions to verify their customers’ identities and report suspicious activity, including tax evasion and money laundering. Reuters reported in December that prosecutors were weighing whether they had enough evidence to bring criminal charges.
The civil complaint filed on Monday by the CFTC alleges that Binance allowed users to trade on its platform without verifying their identities, despite a requirement to do so. The company “failed to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering,” the agency said.
The CFTC alleges that Binance conducted activities outside the United States specifically to avoid regulation. Zhao, who was born in China and later immigrated to Vancouver, has said that the company has had no formal headquarters since 2020.
Regulators also accuse Binance of helping U.S. customers use its offshore site by instructing them to use virtual private networks, or VPNs — programs that can mask a user’s IP address and allow them to access websites restricted in their own country. Zhao was an architect of that “secret plot,” according to the CFTC, which further alleges that Zhao instructed employees to destroy evidence that they had helped investors bypass the controls.
Lim, who worked as Binance’s chief compliance officer from 2018 to 2022, aided Zhao in those efforts, according to the CFTC.