Binance vs USA: All You Need to Know

Binance and CZ have always been a target for the US authorities. It seems like high-ranked politicians can’t comprehend that the crypto industry is not a money-laundering machine but a legit piece of business with huge potential to grow and prosper, while Binance is the motor that drives pushes the train further and further.

Unfortunately, they only see a man of Chinese ethnicity running a multi-billion dollar company in an industry they don’t and won’t ever understand. So, they attack it legally, in media, and on TV…

In this article, we’ll give our opinion on the recent attack on Binance and CZ. Enjoy!

What Happened?

In the latest parade of dumbness, the CFTC sued Binance for outrageous allegations that would make even the most basic crypto bro laugh like never before. But the allegations are serious, and the US gov won’t stop. So, let’s see what’s this all about.

The CFTC alleges that Binance failed to register correctly with the regulator, thereby breaching its regulatory obligations. In addition, the CFTC accuses Binance of intentionally violating US law by soliciting customers based in the United States while obscuring the location of its executive offices and the identities of entities operating the trading platform.

The CFTC is pressing seven counts, including executing unregistered futures transactions and failure to register as a Futures Commission Merchant or Swap Execution Facility. Binance and its executives are also accused of failing to implement Anti-Money Laundering and Know Your Customer controls.

CZ personally is accused of trading from more than 300 accounts, personal or owned by entities under his control, without Binance customers knowing about it.

On top of that, Binance is also under investigation by the Internal Revenue Service and federal prosecutors for adhering to Anti-Money Laundering rules and by the Securities and Exchange Commission for allowing US traders access to unregistered securities. So, the huge crypto company got the complete package, just like the movies.

Interestingly, if you read the lawsuit, you would understand that it highlighted a point of contention between the CFTC and the Securities and Exchange Commission (SEC). The CFTC claimed that Binance engaged in transactions with digital assets that are commodities, including Bitcoin, Ether, and Litecoin, for individuals in the United States. The CFTC's position on $ETH was not controversial before the Ethereum Merge, but SEC Chair Gary Gensler's comment on staking coins brought on a slow wave of reactions.

However, the CFTC case against Binance does not rest on the nature of $ETH but rather the nature of Binance's products, limiting its applicability to the larger argument. Some transactions, such as mixed swaps involving $ETH, could be subject to regulation by both the SEC and CFTC, but that would not necessarily imply cooperation between the two agencies.

What is Wrong with These Allegations?

The short answer is everything. If you take the time to read the 74 pages-long-lawsuit, you’ll find A LOT of interesting and, sometimes, illegal actions from the CFTC and other governmental authorities. Let’s get right into it!

They Have Access to CZ’s Phone…Somehow

It seems like someone from CFTC really liked to watch James Bond movies growing up, as the lawsuit baldly states that CZ’s phone was somehow hacked/accessed to retrieve personal data and messages from it. Unless the governmental authority has an order signed by a federal judge somewhere(it should’ve been attached to the lawsuit, but anyway), this is a punishable crime under US law (we’re not lawyers here, but it's pretty obvious.)

The CFTC has been gathering evidence against CZ and other Binance senior executives by accessing private messages and group chats on Signal. Operating just like any bandit would do, great job!

Tokens Labeled as Commodities

As we all know, different governmental authorities hate each other, and love to not take into consideration each other’s opinions. Just like the town Sherrif hates the FBI agents in those hot-shot Hollywood movies, the CFTC seems to hate the SEC and Gary Gensler in particular (we mean, what’s there not to hate?)

The recent CFTC lawsuit has designated Bitcoin, Ether, Litecoin, Tether, and Binance USD as commodities, in contrast to the assertions of US SEC chief Gary Gensler regarding crypto assets.

The SEC previously referred to BUSD as unregistered security in its Wells notice against Paxos, and Gensler has argued that nearly all crypto assets are securities, with the exception of Bitcoin. With this step, it seems like the CFTC opened a potential win for Paxos in their lawsuit.

Paul Grewal, Coinbase's Chief Legal Officer, criticized the lack of harmony between the two U.S. regulators, claiming that confusion about whether a security is also a commodity could arise depending on which regulator is consulted and when, and questioned whether this is the best American law has to offer.

CZ Approves Minor Expanses – So What?

So, the fact that CZ approved minor expenses (that, by the way, could’ve been expenses for his own office, dummy) makes him responsible for ALL actions of Binance, across all their divisions and within all of their regional offices, right?

Well, this is just straight nonsense, as, according to the complaint, the CFTC has alleged Zhao owned and controlled dozens of entities that operate the Binance platform as a common enterprise. What entities? What’s their name? Where are they based?

No answer from CFTC or any other related parties in this outrageous lawsuit.

What’re the Respons from CZ and Binance?

CZ responded quickly to the allegations, making a detailed blog just hours after the news came in. He dismissed accusations from the Commodities Futures and Trading Commission, asserting that Binance does not engage in market manipulation or trade for profit, which, by the way, would be an outrageous thing to do, as the company has inside information on Launchpads, listing and delisting. CZ denied all allegations made by the CFTC and clarified that Binance and CZ personally trade primarily to convert crypto revenue into fiat or other cryptocurrencies to cover expenses.

He further stated that Binance has policies to prevent insider trading and that employees are restricted from buying or selling coins based on private information.

Zhao also defended Binance’s compliance program and stated that the platform has more than 750 people working to ensure it operates within Anti-Money Laundering and Know Your Customer laws. He highlighted that Binance.com holds 16 licenses for digital asset trading services, the most among cryptocurrency trading platforms.

However, it seems like the blog posted today wasn’t the last thing CZ had to say about this lawsuit. We’re sure that Binance and its legal team are preparing a proper response to take on the allegations. The question is, will they go in front of a judge, or will they decide the matter behind closed doors?

What’s Next?

Initially, the lawsuit claimed that Binance offered futures and derivatives without registration with the CFTC. Such violations, if proven, carry fines, which are practically irrelevant for companies with revenues so big they don’t know what to do with them. However, lawyers point to other aspects of the lawsuit that could have more serious consequences for Zhao's company.

Some charges could effectively prohibit Binance and its subsidiaries from accessing US markets. They could also seize salaries, profits, and other benefits or incomes that the company had when the CFTC thinks the unlawful activity took place.

The CFTC claims that the exchange actively attracted users from the US and bypassed its own ineffective compliance program. The regulator alleges that Binance, Zhao, and Lim violated eight key provisions of the Commodity Exchange Act, including requirements for thorough AML checks.

There are also clauses regarding trading against clients and encouraging VPN use. The regulator writes that the crypto exchange deliberately engaged in criminal activity. All these supposed acts, if proven, will ban Binance services on American soil.

The DOJ may also initiate a criminal case against Binance. A person involved in the CFTC investigation reported this to Block journalists. He stated that law enforcement agencies were also interested in the case and the commission, an interest that might escalate and turn into subpoenas, arrests, and so on.