American regulators accused Binance of flouting regulations and engaging in questionable business practices.

We’ve been nervously examining banks for so long lately that we’ve almost forgotten about the other financial services sector, which is slowly collapsing under the weight of its own irrational decisions. The cryptocurrency crisis hasn’t gone away. Four months after it was revealed that FTX was a Madoff-sized super-scam, American regulators on Monday accused Binance, a competing major cryptocurrency exchange, of flouting regulations and engaging in questionable business practices.

Obey and request

You’ve got to give credit to the cryptopreneurs who have succeeded in attracting the wrath of virtually every government body. The largest cryptocurrency exchange in the world, Binance, was the subject of an IRS investigation in 2021 for allegedly facilitating money laundering and other illegal activities. The SEC, for its part, has probed whether Binance sells or offers unregistered securities. And now, finally, the Commodity Futures Trading Commission has joined the party, officially accusing the company and CEO Changpeng Zhao of routinely violating derivatives rules and having failed to even register with the agency.

The CFTC said in its lawsuit that Binance had breached US regulations requiring the trading of futures contracts and other derivatives on regulated platforms by adopting a “calculated, staged approach to increase its United States presence.” At times, the complaint reads like a parody of a company trying to work around the rules:

  • To skirt US regulations, the CFTC alleges that Binance encouraged US customers to employ VPNs to make it appear, digitally at least, that they were operating outside of US borders. That might have motivated Binance’s Money Laundering Reporting Officer (a actual job title) to declare in a November 2020 workplace chat “I HAZ NO CONFIDENCE IN OUR GEOFENCING.”
  • The government also alleges that Binance used Signal, a secure messaging software with end-to-end encryption, to connect with its high-profile clients and purposefully destroyed papers and records. When asked by the MLRO if there should be concern over Russian customers moving money on the platform to buy weapons, former compliance officer Samuel Lim chatted back, “Like come on. They are here for crime.

In a statement, CFTC Enforcement Division head Gretchen Lowe said, “the defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose — over and over again — to place profits over complying with the law.” In August 2020, Binance made $63 million in derivatives transaction fees from American customers.

Bit Happens: It’s unfortunate timing for the diminishing ranks of crypto enthusiasts, who were probably feeling good about the looming banking catastrophe in the old world. But not so. Bitcoin, still down some 60% since its November 2021 sugar high, traded at a 10-day low Monday following the CFTC’s allegations against Binance. Hey Matt Damon, should we buy the dip?

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