A new civil suit against Binance filed by the Commodity Futures Trading Commission accuses the crypto giant of a slew of counts, including failing to register its derivative products and failing to fence off its services from U.S. customers. But it’s also filled with specific details about alleged criminal activity from the top officers of the company, whom the CFTC accuses of knowing about and engaging in criminal transactions.
“Internally, Binance officers, employees, and agents have acknowledged that the Binance platform has facilitated potentially illegal activities,” the CFTC’s complaint reads, citing the example of a conversation between former chief compliance officer Samuel Lim and another colleague in February 2019 about a transaction with Hamas, a militant group. Lim reportedly told the colleague that terrorists typically send “small sums,” because “large sums constitute money laundering.” The colleague responded, “can barely buy an AK47 with 600 bucks.”
Lim also acknowledged in February 2020 that some of Binance’s customers, including those from Russia, were involved in illegal activities, according to the complaint. Lim wrote in a chat message about those trades: “Like come on. They are here for crime.” The money laundering reporting officer at Binance responded at the time, “we see the bad, but we close 2 eyes.”
In another instance, a Binance employee allegedly asked Lim and another colleague in July 2020 to remove a customer who was sourcing over $5 million from “questionable services” believed to be illegal, according to the complaint. Lim wrote in response to the employee:
“Can let him know to be careful with his flow of funds, especially from darknet
like hydra
He can come back with a new account
But this current one has to go, it’s tainted”
A Binance spokesperson told Fortune that the complaint came as a surprise to the company.
“The complaint filed by the CFTC is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the U.S. and around the world,” Binance’s spokesperson said.
“We have made significant investments over the past two years to ensure we do not have U.S. users active on our platform. During that period, we went from approximately 100 people in our compliance team to around 750 core and supporting compliance personnel today, including almost 80 personnel with prior law enforcement or regulatory agency experience and approximately 260 personnel with professional certificates in compliance,” the spokesperson said.
Aside from the latest CFTC lawsuit, Binance has been under investigation by the Department of Justice since 2018 for allegedly flouting U.S. compliance laws, anti-money-laundering rules, and sanctions. The crypto exchange may be preparing to pay settlement penalties worth more than $1 billion, the Wall Street Journal reported last month.
The crackdown on Binance comes after the spectacular collapse of crypto exchange FTX, which folded last year. The CEO of that exchange, Sam Bankman-Fried, has since been charged with several criminal counts and is awaiting trial in the U.S. SEC Chair Gary Gensler taken a tougher posture against the crypto industry over the past few months. In December he compared crypto companies with casinos and said they needed to “come into compliance with our time-tested laws.”
Aside from details of chats between top Binance officers, the CFTC’s complaint largely focuses on its alleged failure to communicate details of its work in the U.S., and going against compliance rules, alleging that for the first two years of operations, the company “did not take any steps to limit or restrict the ability of U.S. customers to trade on the platform.” Even after Binance updated its terms of use limiting availability in the U.S. in 2019, customers could use loopholes including virtual private networks (VPNs) to access the sites, according to the suit. It further alleges that CEO Changpeng Zhao and Lim were both fully aware of the existence of these loopholes, and that in 2020, a year after Binance had updated its terms of use, nearly 18% of its customer base was still located in the U.S., citing revenue reports.
The complaint also alleges Binance knowingly obfuscated its structure, saying the company relies on a “maze of corporate entities” that is deliberately designed to “obscure the ownership, control, and location of the Binance platform.” Binance’s offerings include websites and mobile apps, some of which are independently operated, according to the complaint. The lawsuit alleges that Binance has become so efficient at hiding its operational structure and the location of its companies, “it has even confused its own chief strategy officer,” who mistakenly called Binance a “Canadian” company last year before being corrected by a spokesperson. Zhao has long insisted that, as a decentralized company, Binance has no headquarters.
Update, March 27, 2023: This article has been updated with a statement from Binance.
