Thread by @web3isgreat

US CFTC sues Binance and CEO Changpeng Zhao

March 27, 2023
web3isgoinggreat.com/?id=cftc-sues-…

lol

CFTC also doesn't seem terribly impressed with Binance's "gamification" of trading

CFTC also alleges that Binance is trading against its own customers, without disclosure

"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."

There is a long section on how Binance's know-your-customer (KYC) and restriction of US users is only "for show" — something the CCO explicitly admitted in chat messages.

Rule 1: If you're going to do crimes, don't put them in writing.
Rule 2: If you're going to put them in writing, don't write them in "I CAN HAZ CHEEZEBURGER" style writing, it's embarrassing.

"Lim acknowledged in a February 2020 chat: 'Like come on. They are here for crime.' Binance's [Money Laundering Reporting Officer] agreed that 'we see the bad, but we close 2 eyes.'"

In some cases, employees advised customers who were "very closely associated with illicit activity" that they need to be "careful with [their] flow of funds, especially from darknet like hydra", and to create new accounts.

"offboarding = bad in cz's eyes"

CZ says that "our public stance is we never had any US users", despite allegedly having ample knowledge of the number of US customers on the exchange.

"[Binance and other defendants have] made deliberate, strategic decisions to evade federal law."

"Lim chatted to a colleague: 'US users = CFTC = civil case can pay fine and settle
no kyc = BSA act [sic] = criminal case have to go [to] jail'"

[will finish thread later, have to go!]

Okay, wrapping back up now: The CFTC complaint goes on to list three US companies ("Trading Firms A–C") that not only traded on Binance but which CFTC alleges Binance actively aided in circumventing compliance controls by using "personal" accounts, offshore shell companies, etc

Firms are not named, but are described as a quant firm HQed in Chicago, with offices in NY and Amsterdam (A); a quant firm HQed in NY and with offices in London, Amsterdam, Hong Kong, and Singapore (B); and a quant firm HQed in NY with offices in London, Singapore, HK, etc (C)

Violations alleged:
I. Execution of Futures Transactions on an Unregistered Board of Trade
II. Illegal Off-Exchange Commodity Options
III. Failure to Register as a Futures Commission Merchant
IV. Failure to Register as a Designated Contract Market or Swap Execution Facility

V. Failure to Diligently Supervise
VI. Failure to Implement Customer Information Program, and Failure to Implement Know Your Customer and Anti-Money Laundering Procedures
VII. Violations of Anti-Evasion Regulations

Oops, skipped some stuff. CFTC alleges that CZ keeps some information secret even from high level employees who interact with US regulators to reduce "leak risk"

"One reason Binance’s IP address-based compliance controls have not been effective is that Binance has instructed U.S. customers to evade such controls"

yeah that would do it i suppose

CFTC describes "Binance’s use of creative workarounds to its compliance control"

"No we cannot change their status to non us if they are us
Thats fraud
But we can encourage them to be a non kyc account"

Ah, it looks like Binance was using the "sick ass volumes" loophole in commodities regulations

CFTC outlines the steps Binance took to have US "VIP" customers create new accounts with documentation only from shell companies incorporated outside of the US.

"[m]ake sure to inform
user to keep this confidential"

"If user doesn’t get the hint, indicate that IP is the *sole* reason why he/she can’t use
.com” [emphasis in original]."

"Chicago-headquartered
trading firm] who is currently is a top 5 client and 12% of our volume"

👀

After the CFTC charged BitMEX with operating an unregistered trading platform and other violations, Binance started renaming "US" in internal data to "unknown".

CFTC alleges Binance was aware of and even encouraged offshore "brokers" that operating on the exchange, some of which were processing US customers' transactions.

end

Full complaint at courtlistener.com/docket/6709286…