CFTC Sues Binance Over ‘Sham’ Compliance Program, ‘Willful Evasion’ of Law

By Benjamin Hardy and Fred Williams

U.S. regulators charged global cryptocurrency exchange Binance, the company’s chief executive officer and a former chief compliance officer with violating federal commodities laws Monday, alleging that the platform helped U.S. customers evade its own compliance program for years.

In a 74-page civil complaint filed in Chicago, the Commodity Futures Trading Commission, or CFTC, alleges that Binance founder and CEO Changpeng Zhao oversaw his company’s “calculated, phased approach” towards operating in the U.S. without registering, and despite claiming in mid-2019 that it had controls in place to block Americans from accessing the platform.

Internal records instead show that Binance, the world’s largest cryptocurrency exchange, instructed U.S. clients—including at least three trading companies—how to skirt those controls with the help of shell companies and virtual private networks, or VPNs, a method of obscuring an internet user’s true location.

As of June 2020, a year after Binance claimed to have begun screening out U.S. traffic, almost 18 percent of the exchange’s customers hailed from the United States, a corporate revenue report sent to Zhao that year and cited by the CFTC indicates. As of September 2020, Binance still served 2.5 million customers based in the U.S.

Internal communications obtained by regulators suggest the compliance failure was engineered, not accidental. In a meeting in June 2019, for example, senior management discussed how to retain high-volume institutional customers in the U.S., known as “VIPs,” with Zhao settling on a plan to instruct them to close their accounts and use offshore entities to open new ones.

” ‘We do need to let users know that they can change their KYC [know-your-customer information] on and continue to use it,’ ” Zhao allegedly said. ” ‘But the message, the message needs to be finessed very carefully because whatever we send will be public. We cannot be held accountable for it.’ ”

Binance allegedly notified VIPs whenever law enforcement requested information about their accounts, according to the CFTC. Monday’s complaint cites a policy created by Lim, acting under directions from Zhao, pursuant to which a set of personnel known as the “VIP team” alerted VIPs immediately when their accounts were frozen or unfrozen.

“ ‘Do not directly tell the user to run, just tell them their account has been unfrozen and it was investigated by XXX,” the policy allegedly states. “If the user is a big trader, or a smart one, he/she will get the hint.’ ”

Federal authorities also accused Binance of misleading business partners about the quality of its compliance program.

At one point the company went as far as to intentionally hire a compliance auditor who Lim hoped would ” ‘just do a half-assed individual sub audit on geo[fencing]’ to ‘buy us more time,’ ” according to the complaint.

“As part of this audit, the Binance employee who held the title of Money Laundering Reporting Officer … lamented that she ‘need[ed] to write a fake annual MLRO report to Binance board of directors wtf,’ ” according to the complaint. “In November 2020, the MLRO exclaimed to Lim in a chat, ‘I HAZ NO CONFIDENCE IN OUR GEOFENCING.’ ”

A spokesperson for Binance called the CFTC’s action “unexpected and disappointing” and said the company has made “significant investments” in compliance over the past two years to block U.S. customers.

But increasing regulatory and legal scrutiny over the past year, namely from federal officials who suspect Binance violated U.S. sanctions and anti-money laundering rules, meant that Monday’s complaint came as little surprise.

“My reaction was, ‘Finally,’ ” Peter Piatetsky, chief executive of Castellum.AI, an anti-financial crime consultancy in New York, said, adding that the CFTC’s case against Binance does not mean that criminal charges against the company are now off the table.

The complaint’s extensive quotes from internal communications suggest federal authorities developed sources inside the company or a wiretap, said Piatetsky, who previously worked as an investigator and senior policy advisor at the Treasury Department’s Office of Terrorist Financing and Financial Crimes.

“I think CZ [Changpeng Zhao] is going to be personally worried,” Piatetsky said.

Prosecutors in Seattle and Washington, D.C., have taken point in the Justice Department’s investigation into Binance.

Walter Norkin, a former prosecutor with the Eastern District of New York and the Southern District of Florida, said Binance would risk losing protection against self-incrimination in a criminal trial by attempting to negotiate a settlement with the CFTC.

“It would be foolish to think there’s not a criminal charge around the corner,” said Norkin, now head of the international criminal defense practice at Akrivis Law Group in Miami.

Zhao, a Canadian citizen, currently resides in Dubai.

Lim, who became Binance’s chief compliance officer in April 2018 and was placed on administrative leave in May 2022, resides in Singapore. Though Lim ran compliance, Zhao ultimately retained control over all critical decisions for Binance’s anti-money laundering program, according to the CFTC.

The complaint arrived amid a blitz of recent U.S. regulatory actions against cryptocurrency companies, most prominently from the Securities and Exchange Commission.

Many cryptocurrency enthusiasts argue that the U.S. government generally should regulate digital assets as commodities, rather than securities, in part due to the SEC’s perceived hostility to the industry.

But Monday’s lawsuit suggests the CFTC’s regulatory tools are no less powerful than the SEC’s, said Joshua Ashley Klayman, an attorney specializing in financial technology at Linklaters in New York.

“Unlike the SEC, an action by the CFTC doesn’t need to demonstrate that a digital asset or digital asset-related activity involves a security, which is highly facts-and-circumstances specific,” Klayman said. “The CFTC is not the ‘softer’ regulator that some in the digital asset space may have thought or hoped.”

Contact Benjamin Hardy at and Fred Williams at

Topics : Anti-money laundering , Cryptocurrencies , Know Your Customer
Source: U.S.: CFTC
Document Date: March 27, 2023