Crypto Giant Binance, CEO Sued For Allegedly Evading US Laws

Facts

• On Monday, the US Commodities Futures Trading Commission (CFTC) sued Binance, the world's largest cryptocurrency exchange, and its CEO, Changpeng Zhao, for allegedly violating US trading and derivatives laws by operating an illegal exchange and a sham compliance program.¹
• The CFTC's lawsuit — filed in Chicago federal court — accuses Binance, Zhao, and a former compliance executive of wilfully skirting US laws as a 'calculated strategy of regulatory arbitrage to their commercial benefit.'²
• In addition, the financial regulator points to the violation of eight core provisions of the Commodity Exchange Act, including laws that require companies to design controls 'to prevent and detect money laundering and terrorism financing.'³
• Alleging that Binance used an 'intentionally opaque' global corporate structure to escape oversight and maximize corporate profits, the CFTC seeks restitution, fines, and permanent trading and registration bans.⁴
• Meanwhile, Zhao claims the CFTC lawsuit is 'unexpected and disappointing' and contains 'an incomplete recitation of facts,' adding that he disagrees with the characterization of many issues alleged in the complaint.⁵
• Binance — which has over 90M customers worldwide — touted a trading volume of more than $9B in 24 hours between March 26-27. In May 2021, the company recorded a monthly profit of $1.14B — 16% of the profitable accounts in that month were reportedly held by US-based users.⁶

Sources: ¹Verge, ²Reuters, ³NBC, ⁴BBC News, ⁵Wall Street Journal and ⁶TechCrunch.

Narratives

• Narrative A, as provided by Brookings. Current regulation on illegal crypto industry activity is not working, which is why the focus must be shifted to combating illicit uses of cryptocurrency in circulation before new forms of virtual currencies are allowed to be introduced. Theft, fraud, and extortion can all be prevented by implementing a central bank of digital currency, but the flow of cryptocurrency to criminals — which should be the focus of continued intervention in the market — can be mitigated by keeping an up-to-date and easily accessible list of the bad actors brokering the transactions.
• Narrative B, as provided by The Hill. Crypto is not the dollar, so traditional regulations are merely increasing the volatility of the crypto market, rather than giving the government its desired regulatory power over exchanges. To keep the market stable, the US needs to introduce decentralized blockchain tech — it would improve transparency, thereby protecting users, and make the markets, effectively, self-regulating. Rather than making endless attempts to impose an irrelevant system of regulation, the government should respond to the problems of crypto with a solution tailored to the technology.