CFTC Charged Zhao to Pay $150 million and Binance $2.7 billion

On December 18, 2023, the U.S. District Court for the Northern District of Illinois finally approved the pending allegations and settlement. It entered an order of permanent injunction, civil monetary penalty, and equitable relief against Binance Holdings Limited, Binance Holdings (IE) Limited, Binance Services Holdings Limited, and former CEO Changpeng Zhao.

Highlights of the Approval

The claims were initially announced on November 21, 2023, when the CFTC claimed and found that Zhao and Binance had violated the Commodity Exchange Act (CEA) and CFTC regulations.

The district court imposed a $150 million civil monetary penalty against Zhao and required Binance to pay $1.35 billion of ill-gotten transaction fees and pay a $1.35 billion penalty to the CFTC.

Apart from this, the order also obligated Binance and Zhao to make certifications as to the existence, application, and efficacy of Binance’s improved compliance controls and permanently instructed them against any further violations.

Key points of the CFTC Complaint

The order found that Binance, with the direction of Zhao, actively solicited customers in the United States, including quantitative trading firms that entered into digital asset derivative transactions directly on the Binance platform.

Binance had also violated its own terms of use as it allowed at least two prime brokers to open sub-accounts that were not subject to Binance’s know-your-customer (KYC) procedures and enabled U.S. customers to directly trade on the platform.

Moreover, a later court found that Zhao and Binance were well-versed in U.S. regulatory requirements. However, they chose to ignore it, knowingly concealing the presence of U.S. customers on the platform.

It was also found that Zhao and other members of Binance’s senior management actively facilitated violations of US law, instructing U.S. customers to evade compliance controls.

Penalties and Obligations

Binance and Zhao have to certify that, after the filing of the CFTC’s complaint, Binance has offboarded the qualitative trading firms identified in the CFTC’s complaint as they did not meet Binance’s improved onboarding criteria.

Binance and Zhao also agreed that any customer who tries to onboard, either through a primary or sub-account, should complete all KYC onboarding procedures.

The order also required Binance and Zhao to make additional certifications, including that Binance will no longer allow existing sub-accounts, and that Prime Brokers opened to bypass the platform’s compliance controls.

After applying all KYC policies and procedures to all existing sub-accounts, Binance will rule out all the accounts that cannot meet compliance controls. The court also ordered Binance and Zhao to implement a corporate governance structure that includes a board of directors with independent members, a compliance committee, and an audit committee.

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