In a recent blog post, Binance CEO Changpeng Zhao expressed his disagreement with the portrayal of many allegations in the U.S. Commodity Futures Trading Commission’s (CFTC) civil enforcement action and called the lawsuit “unexpected and disappointing.”
Binance was accused of obtaining and accepting orders and providing other investment products to U.S. residents. The CFTC also accused Binance of intentionally evading regulations, failing to enforce identity verification at times, and advising customers on how to bypass compliance controls.
In response, Zhao claimed that the crypto exchange has worked with the regulator for over two years and blocks all U.S. residents and citizens living abroad, as well as U.S. mobile phones, IP addresses, and credit cards. He also said that Binance imposes mandatory KYC (know-your-customer) checks on all customers worldwide, contradicting the CFTC’s allegations.
Binance has a large compliance team of over 750 people with prior law enforcement and regulatory agency backgrounds. Zhao argued that this team has assisted with over 55,000 law enforcement requests and helped U.S. authorities freeze and seize over $125 million in funds in 2022 and $160 million in 2023.
The company holds the highest number of licenses and registrations globally, with 16 and counting, and intends to continue to respect and collaborate with U.S. and other regulators worldwide.
Zhao also noted that upon initial review, the complaint appeared to have incomplete facts, but Binance would provide a complete response in due time.
— Squawk Box (@SquawkCNBC) March 28, 2023
As Binance faces mounting issues, traders are withdrawing billions of dollars from the platform. Crypto data provider Nansen reported that Binance, the world’s largest crypto exchange, witnessed net outflows of $2.1 billion in the last seven days until Monday evening.
Nansen data also show that Binance holds $63.2 billion in the exchange’s publicly disclosed wallets. Andrew Thurman, a Nansen analyst, said that the withdrawal pace had increased compared to normal activity, especially after the CFTC announcement.
Last week, Binance restored fees on spot bitcoin trading, which it had previously removed during the summer, possibly in response to its issues. Additionally, the exchange briefly paused spot trading to address a software error.
Despite significant withdrawals from Binance, the outflows were more pronounced in February after New York regulators banned the new issuance of Binance’s stablecoin BUSD, reaching over $1 billion every 24 hours at its peak.
Investors and analysts are monitoring the possibility of regulatory measures being taken against Binance in the U.S. and elsewhere. Binance’s chief strategy officer has previously mentioned that the exchange expects to pay monetary fines to resolve existing regulatory and law enforcement investigations into its business.
CFTC calls out Binance’s evasive HQ
The CFTC’s complaint also challenged Binance’s evasion of headquarters. The corporation allegedly planned to operate through multiple business entities registered in different jurisdictions. The CFTC considers this practice as an attempt to “keeping countries clean [of law violations]” by not having a specific headquarters, according to a statement made by Zhao during an internal meeting in 2019.
Binance has postponed naming an executive headquarters for several years and has yet to provide a location, despite hints that it might do so soon. However, former CFTC trial lawyer Braden Perry claims that the “no headquarters, no violations” tactic is unlikely to be a valid argument in court.
Many crypto firms are based overseas to avoid regulation, but the head of Ramp’s U.S. legal affairs, Yamina Sara Chekroun, believes this lawsuit sends a message that jurisdictional controls will be closely monitored and enforced.