The US financial derivatives regulator, the CFTC, on Monday took legal action against the world’s largest cryptocurrency trading platform, Binance and its boss Changpeng Zhao, accused of willfully circumventing US regulations.
This is a new episode in the offensive launched by the regulators, the CFTC and the Securities and Exchange Commission (SEC), against the practices of players in the cryptocurrency community.
They thus seek to compensate for the absence of legislation to regulate this industry, even if several texts are under discussion in Congress. Their offensive accelerated after the November bankruptcy of FTX, the world’s second largest platform.
In the document filed in a federal court in Illinois, the CFTC claims in particular that Binance be prohibited from registering and selling certain financial products in the United States.
Binance called the lawsuit “unexpected” and “regrettable,” saying it has been working with the CFTC for “more than two years,” according to a reaction sent to Agence France-Presse (AFP). “We plan to continue working with regulators in the United States and around the world,” the group said.
The regulator accuses Binance and several of its executives of having sold products to American customers in violation of financial regulations, despite having undertaken not to solicit users in the United States.
According to the CFTC, “Upon Zhao’s instruction, Binance advised its employees and customers to circumvent compliance checks [réglementaire] to maximize its profits.
In particular, Binance chose not to ask its US users for proof of identity, as required by financial regulations in the United States, according to the document filed on Monday.
“Just the Beginning”
“For years, Binance has worked actively to keep its business running and avoid compliance” with regulations, CFTC Chairman Rostin Behnam said in the statement.
“This should be a warning to everyone in the digital asset community,” he said.
The authority “will not tolerate willful avoidance of American legislation”, hammered the official.
According to internal emails dated 2019 and mentioned in the Monday filing, Binance executives estimate that at least 20% of the platform’s traffic is initiated by US users and attribute the same proportion of the group’s revenue to these customers.
Binance claims to have allocated additional resources to “ensure [qu’il n’y avait pas] US active users on [la] platform” and increased the number of staff dedicated to regulatory compliance from 100 to 750 people.
The CFTC’s blow to Binance shook the entire cryptocurrency community. Bitcoin fell to its lowest level in ten days at US$26,543.
As for Binance Coin (BNB), a cryptocurrency attached to the Binance platform and fourth digital currency by overall valuation, it lost more than 6%.
“Everyone knew this day was coming,” commented AJ Nelson, entrepreneur and creator of the Rain platform, on Twitter. “This is probably just the beginning. »
“All eyes are on this lawsuit,” wrote Meltem Demirors of digital asset investment firm CoinShares. In addition to Binance and Changpeng Zhao, the CFTC also implicated the compliance officer, Samuel Lim, and two Irish subsidiaries of the group.
In mid-February, the New York State Department of Financial Services had ordered the company Paxos to stop issuing in the name of Binance a so-called stable cryptocurrency or “ stablecoin », the BUSD, a first blow to the platform.
The SEC argues that BUSD is a financial security and therefore must be registered with it and subject to applicable regulations.
Last week, the main American exchange, Coinbase, revealed in a document filed with the SEC that the authority had notified it that it would soon sue it for violating securities regulations.