Binance, the world’s largest cryptocurrency exchange, and its former CEO Changpeng Zhao (CZ) were ordered to pay a hefty fine by the U.S. District Court for the Northern District of Illinois. This ruling brings to a successful conclusion an important enforcement action initiated by the Commodity Futures Trading Commission (CFTC).
The decision issued by the court on December 18, 2023 marks the completion of the enforcement proceedings that began in November. An investigation conducted by the Commodity Futures Trading Commission (CFTC) found that Binance and CZ aggressively targeted U.S. customers, particularly quantitative trading firms, for trading digital asset derivatives on the Binance platform. These actions violated both Binance’s Terms of Service and U.S. law, a blatant violation of both. The investigation revealed that, under CZ’s supervision, Binance allowed at least two prime brokers to create sub-accounts that circumvented the platform’s Know Your Customer (KYC) requirements. This allows US customers to trade directly on the platform. With regard to Commodity Exchange Act (CEA) and Commodity Futures Trading Commission (CFTC) regulations, the court determined that Zhao and Binance were aware of the legal obligations that existed in the United States but chose to ignore them.
As part of the settlement, Binance and CZ agreed to implement more stringent policies and procedures. This includes establishing a formal corporate governance structure, eliminating existing sub-accounts that circumvent compliance measures, and adopting a rigorous Know Your Customer (KYC) onboarding process for all customers. It is expected that this structure will include a compliance committee, an audit committee, and a board of directors that includes individuals not affiliated with the organization. Additionally, as part of the agreement, Zhao and Binance are obligated to demonstrate the existence of these upgraded compliance measures and their use and effectiveness.
In addition to financial fines, Changpeng Zhao will also face legal penalties. He acknowledged that he would step down as CEO of Binance as part of an agreement to plead guilty to violating federal anti-money laundering regulations. Zhao is expected to continue to reside in the United States until sentencing on February 23, 2024, and he could face up to 18 months in prison. After Zhao decided to resign from his position as CEO of Binance, Richard Teng, who previously served as Binance’s global head of regional markets, was appointed to the position.
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