Last Updated on March 29, 2023 by Bitfinsider
After reportedly hosting accounts connected to Hamas and Russian criminals, the world’s largest bitcoin exchange has been threatened with a US trading prohibition.
Binance is being sued by regulators for allegedly attempting to escape money-laundering laws while allowing high-risk trades by Americans.
Bitcoin’s price fell by 4% after the case was revealed, amid worries that the crackdown would seriously disrupt trading.
According to a Chicago court document, the Commodity Future Trading Commission (CFTC) accused Binance and its creator, Changpeng “CZ” Zhao, of encouraging Americans to evade compliance controls and violate market rules in a civil lawsuit.
It alleged that workers of the company – an offshore cryptocurrency behemoth that handles trillions of pounds in digital asset transactions – made jokes about terrorism using the platform, demonstrating how lax the rules were.
The CFTC claimed that Samuel Lim, Binance’s top compliance officer, stated in February 2019 after getting information about Hamas transactions that terrorists typically send “small amounts” because “large sums comprise money laundering.”
On another occasion, Mr Lim is said to have determined that a trader who was “very closely affiliated with illegal activity” and was responsible for $5 million (£4.1 million) in questionable trades should have their account closed and a new one opened.
Following the collapse of Binance’s main competitor, FTX, whose creator Sam Bankman-Fried is facing fraud charges in the US, the intervention is expected to add to the market’s skepticism.
The CFTC charged Binance with seven regulation violations for providing Bitcoin and Ethereum derivatives trading without following US rules or correctly registering its operations.
It claimed that, in order to increase earnings, the company had laxed its compliance controls, such as the requirement to effectively screen prospective clients and block suspicious accounts.
The claims will add to the strain on the cryptocurrency giant, which is already under investigation in the United States, including a criminal case filed by the Justice Department.
US lawmakers charged Binance earlier this month in a letter to Mr Zhao of facilitating a hotbed of illegal financial behavior and permitting up to $10 billion in payments to offenders or sanctions evasion.
The auditor for the cryptocurrency firm quit in December. In the United Kingdom, it has been scrutinized by the Financial Conduct Authority, which has barred it from establishing a British affiliate until 2021.
Customers in the United Kingdom can still engage with Binance via its foreign exchange.
While Binance has a distinct North American business, Binance.US, the CFTC lawsuit claims it discreetly instructed its most valuable clients to trade with its primary foreign branch, which has fewer controls.
The CFTC claimed in the court papers that Binance had used a “maze of corporate companies” to conceal its true ownership, while Mr Zhao had frequently failed to clarify where Binance was truly based. “Zhao reports to no one but himself,” the supervisor stated.
The CFTC claimed Binance had increased its US customer base, with 18% of traders located in the US, even after it formally restricted US access.
When a business partner needed a more thorough audit, Binance reportedly engaged a company that would do a “half assed” job, according to messages from one employee.
The regulator stated that it would pursue irreversible trading and registration sanctions against Binance in the United States, as well as an order prohibiting Binance and its officials from influencing or steering digital asset trading.
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