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Washington, D.C. — The Commodity Futures Trading Commission today announced Changpeng Zhao, and his companies Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited (together, Binance) agreed to a proposed consent order for permanent injunction, civil monetary penalty, and equitable relief that, if entered by the U.S. District Court for the Northern District of Illinois, will resolve all charges the CFTC brought against Zhao and Binance for knowingly disregarding provisions of the Commodity Exchange Act (CEA) to profit from their operation of an illegal digital assets derivative exchange.
The proposed consent order requires Binance to disgorge $1.35 billion of ill-gotten gains and pay a $1.35 billion civil monetary penalty to the CFTC, and obliges Zhao to pay a $150 million civil monetary penalty to the CFTC. In addition, the order permanently enjoins Zhao and Binance from willfully evading the CEA; acting as an unregistered futures commission merchant (FCM); operating an illegal digital asset derivatives exchange; and failing to have adequate know-your-customer compliance controls among other illegal activities in the order. The defendants must also certify that certain remedial measures have been implemented and Binance must further certify it will take certain remedial steps in the future, including no longer allowing “sub-accounts” to circumvent Binance’s newly implemented compliance controls.
The proposed settlement and remedies are subject to court approval. The CFTC submitted the proposed consent order to U.S. District Judge Manish Shah today for review.
Also, today, the U.S. Department of Justice (DOJ) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) announced charges against Binance Holdings.
“Binance’s activities undermined the foundation of safe and sound financial markets by intentionally avoiding basic, fundamental obligations that apply to exchanges, all the while collecting approximately $1.35 billion in trading fees from U.S. customers,” said CFTC Chairman Rostin Behnam. “American investors, small and large, have demonstrated eagerness to incorporate digital asset products into their portfolios. It is our duty to ensure that when they do so, the full protections afforded by our regulatory oversight are in place, and that illegal and illicit conduct is swiftly addressed. When, as here, an entity goes even further, deliberately avoiding to employ meaningful access controls, intentionally avoiding knowing customers’ identities, and actively concealing the presence of U.S. customers on its platforms, there is no question that the CFTC will strike hard and aggressively.”
“Today’s proposed resolution of the CFTC’s action against Zhao and his company makes clear that Binance miscalculated the cost of its corporate strategy of regulatory evasion,” said CFTC’s Director of Enforcement Ian McGinley. “Binance’s chief compliance officer’s remark that Binance’s solicitation of U.S. persons would implicate a chain of events including: ‘CFTC = civil case = pay a fine and settle’ was a poor business decision.”
“Customer Protection, market integrity, accountability, and deterrence are the guiding principles of CFTC enforcement actions,” said Gretchen Lowe, CFTC’s Enforcement Division Principal Deputy Director and Chief Counsel. “In filing this action last March and with today’s proposed resolution, the CFTC is demanding the defendants and others who want to operate digital asset platforms meet those principles by adopting rigorous internal controls and having a culture of the highest level of compliance, starting at the top of the company.”
Lowe further stated, “The CFTC is achieving this tremendous result due to the dedication, skill, and hard work of its Enforcement team, and the strong cooperative relationship CFTC’s Enforcement Division has with its partners at DOJ, FinCEN, and OFAC.”
Case Background
The proposed order stems from the CFTC complaint filed March 27, against Binance, its owner and CEO Zhao, and Binance’s former chief compliance officer, Samuel Lim. [See CFTC Press Release No. 8680-23] The CFTC complaint charged Binance with, among other things, illegally offering and executing commodity derivatives transactions to and for U.S. customers, and accepting funds from those customers, who for most of the relevant period were not required to provide any identity-verifying information before trading on the platform. The complaint further charged Zhao, Binance, and Lim with willful evasion of the CEA.
The proposed order finds Binance offered and executed commodity derivatives transactions to and for U.S. persons beginning in July 2019 through its operation of the world’s largest digital asset derivatives trading platform. The proposed order further finds Zhao and Binance implemented a business strategy of willful non-compliance with the CEA, among other laws, because they believed they would make more money if they did not follow applicable laws. As part of this strategy, Binance took numerous affirmative steps to retain commercially valuable U.S. customers, even though Zhao and Binance were aware that offering commodity derivatives to U.S. persons subjected them to U.S. law.
The proposed order concludes Binance is liable for failing to register with the CFTC in numerous required capacities due to Binance’s functioning as an FCM, foreign board of trade, designated contract market, and/or swap execution facility. It also finds Binance breached its duties, arising out of its status as an FCM, to implement effective know-your-customer procedures and to diligently supervise its activities as an FCM.
The proposed order also explains that Zhao and Binance violated CFTC Regulation 1.6, based on Zhao and Binance intentionally sabotaging and subverting Binance’s superficial compliance controls, including controls designed to restrict the participation of U.S. persons.
Specifically, as to Zhao, the proposed order finds he owned and controlled the opaque maze of entities that operated the Binance trading platform. He was involved in and responsible for all of Binance’s strategic decisions, including those related to offering illegal derivatives products. The proposed order thus finds Zhao liable for Binance’s violations based on his control over the company and his long-running and well-documented failure to act in good faith concerning Binance’s conduct.
Parallel Criminal and Civil Enforcement Actions
The Department of Justice’s Criminal Division, Money Laundering and Asset Recovery Section, its National Security Division’s Counterintelligence & Export Control Section, and the U.S. Attorney’s Office for the Western District of Washington today announced separate criminal actions in which Binance Holdings Limited has pleaded guilty to criminal violations concerning unlicensed money transmitting businesses, the Bank Secrecy Act, and U.S. sanctions laws, and Zhao has pleaded guilty to intentionally causing Binance Holdings Limited to violate the Bank Secrecy Act by failing to implement an effective anti-money laundering program.
Also, today, the Financial Crimes Enforcement Network (FinCEN) announced a consent order imposing a civil monetary penalty against Binance Holdings Limited, Binance Holdings (IE) Limited, and Binance (Services) Holdings Limited. Additionally, the Office of Foreign Assets Control (OFAC) announced an agreement with Binance Holdings Limited to resolve sanctions violations related to Binance’s matching trades between U.S. users and those in sanctioned jurisdictions like Iran, Syria, North Korea, and the Crimea region of Ukraine. The CFTC order recognizes and credits certain payments made by Binance pursuant to the consent to assessment of a civil monetary penalty entered by FinCEN. The four actions announced today, in aggregate, require Binance to pay over $4.3 billion in criminal forfeiture, penalties, and fines.
The CFTC thanks the Department of Justice, Federal Bureau of Investigation, FinCEN, OFAC, the Internal Revenue Service, and the Securities and Exchange Commission for their assistance in this matter. The CFTC also acknowledges the assistance of the British Virgin Islands Financial Services Commission, Cayman Islands Monetary Authority, Monetary Authority of Singapore, and the United Kingdom Financial Conduct Authority.
The Division of Enforcement staff responsible for this matter are Candy Haan, Joseph Platt, Joseph Patrick, Katherine Paulson, Matthew Edelstein, Ray Lavko, William P. Janulis, Margaret Aisenbrey, Elizabeth N. Pendleton, Scott R. Williamson, and Robert T. Howell.
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Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online or contact the Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected, paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.
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