1 year ago
195 The Commodity Futures Trading Commission yesterday filed charges against Binance, its chief executive CZ, and former Chief Compliance Officer, Samuel Lim, for allegedly orchestrating a strategy directing the Binance enterprise to engage in numerous violations of the CEA and CFTC regulations.
The CFTC says CZ and Samuel Lim used a complex operational infrastructure with several entities with the goal of shielding Binance from complying with existing regulations in any of the jurisdictions where the firm operates.
The complaint follows a recent implicit admission of guilt by Binance chief strategy officer Patrick Hillmann, who told the WSJ that the exchange expects to pay monetary penalties to settle a long-running criminal investigation by the US regulators and law-enforcement agencies.
CFTC Commissioner Kristin Johnson commented on the regulator’s complaint against Binance, CZ, and Samuel Lim by pointing out that actors who engage in conduct or transactions that fall within the Commission’s remit should expect to comply with CFTC regulations or face the consequences for failing to comply: “Manufacturing a mere façade of compliance will not shield those engaged in activities within our remit from surveillance, investigations, and potential legal liability for failing to comply with regulations.”
“Deliberate attempt to limit jurisdiction and evade the application of regulation”
“By many measures – trading volume, total number of customers, diversity of product offerings, number of operating units, diversity of jurisdictions offering access to the business’s platforms – Binance is among the largest digital asset enterprises in the world. Zhao controls and directs Binance’s coalition of businesses which purportedly are not headquartered in any jurisdiction and therefore, by extension of this logic, subject to the jurisdiction of none. According to Zhao, Binance is headquartered where he as an individual is physically located at any point in time, reflecting a deliberate attempt to limit jurisdiction and evade the application of regulation. Such an approach is inconsistent with the CEA, CFTC regulations, and the regulations of many other jurisdictions around the world”, said CFTC’s Johnson.
The Commissioner further added that evidence suggests that Zhao and former Binance CCO Lim were aware that Binance’s activities in the United States were subject to registration and regulatory requirements under U.S. law and that they deliberately disregarded these requirements.
“Quite effective at directing U.S. customers on how to evade Binance’s controls”
In her statement, backed by CFTC’s complaint, Johnson said that Binance was quite effective at directing U.S. customers on how best to evade Binance’s access controls and that it engaged in off-exchange commodity futures transactions, and off-exchange transactions in commodity options. In addition, it allegedly operated retail services without being registered as an FCM, and operated a swaps facility without being registered as a SEF or DCM.
“In light of the egregiousness of this conduct and the exceptional effort to orchestrate a conglomerate beyond the reach of regulation, there is an ample basis for concluding that these efforts violate CFTC Regulation 1.6, which the Commission implemented in connection with regulations introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). This regulation authorizes the Commission to introduce and enforce rules to prevent market participants from engaging in regulatory evasion”, she continued.
“Fundamental principles of customer protection and market integrity are embedded in the regulatory structure created by the CEA and CFTC Regulations. By evading application of the statute and regulations, Binance creates significant risk and harm to U.S. customers and global markets. Binance’s unregulated business operates to amplify risk without any regulatory oversight.”
CFTC’s Kristin Johnson said she looks forward to vindication of the Commission’s allegations before the Court, and hopes that other participants in the digital asset markets will take notice and register with the CFTC as appropriate.
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