The U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance and its founder Changpeng Zhao, alleging that the company deliberately broke the law by offering unregistered crypto derivatives products in the United States.
The lawsuit claimed that Binance ran a derivatives trading business in the country and provided trades for a variety of cryptocurrencies, including bitcoin, ether, litecoin, tether, and Binance USD, referred to as commodities in the suit. The lawsuit also claimed that Zhao ordered the staff members to use virtual private networks to obfuscate their whereabouts.
The CFTC accuses Binance of infractions by engaging in “illegal off-exchange commodity options,” offering futures transactions, failing to register as a designated contract market or swap execution facility, managing its business poorly, failing to implement know-your-customer or anti-money laundering procedures, and having a subpar anti-evasion programme.
The CFTC claims that the cryptocurrency exchange, which has a U.S. affiliate called Binance US, developed a system to conceal its true scope and workings. They wrote that “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.”
Furthermore, the lawsuit claimed that Binance instructed US-based users to use a number of strategies to get around the company’s ban on customers with US addresses — instructing significant clients to establish shell companies in locations including Jersey, the British Virgin Islands, and the Netherlands to dodge regulations.
The company has “made significant investments over the past two years to ensure we do not have U.S. users active on our platform,” according to a spokesperson for Binance. This includes expanding its compliance team and investing $80 million on Know Your Customer and other compliance tools.
The Binance representative added that the exchange now keeps “country blocks for anyone who is a resident of the U.S.,” as well as blocks for “anyone who is identified as a U.S. citizen regardless of where they live in the world.” The exchange also prohibits U.S. bank accounts, IP addresses, and mobile service providers.