Binance's internal communications gain meme status on CT

The CFTC alleges that Binance had secret in-house trading accounts, illegally solicited US customers, and subverted compliance controls, seeks to bar exchange and its execs from operating in the US.

Sad Changpeng Zhao, art generated by Midjourney
Image: Midjourney

The U.S. Commodity Futures and Trading Commission filed a civil complaint on Monday against the world’s largest cryptocurrency exchange Binance, its CEO Changpeng “CZ” Zhao, and former chief compliance officer Samuel Lim. The regulator said that the defendants violated seven counts of the Commodity Exchange Act, including unregistered commodities trading and failure to implement KYC/AML procedures,

In a filing, CFTC asked the court to impose disgorgement of salaries, fees, trading profits, and other benefits or earnings derived from US customers since 2017 and bar Binance and its execs from the US commodity market. Should the trial find them guilty, it would have disastrous consequences for the exchange and would likely kill it, experts estimate.

According to Adam Cochran, a crypto researcher and partner at venture firm Cinneamhain Ventures, CFTC, unlike the SEC, rarely agrees to fine settlements, but when it does, it pushes for admission of guilt and other restrictive clauses, such as banning the parties from dealing in commodities. And given that the regulator is seeking payment for all fees back to 2017 and making affected users whole, the fine amount would likely deliver a fatal blow to CZ’s crypto empire.

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“If CZ, Lim and Binance fail to engage with US courts, and fail to defend themselves in a trial, it's likely the CFTC would win flat out, and some criminal contempt/obstruction charges would be added which would extend issues to other countries,” Cochran tweeted. “If they do show up and engage, then the discovery process will be opening all their books internationally to US regulators from all entities including those personally owned by CZ to churn up other issues.”

“Only semi-safe path for Binance here is likely a settlement which CFTC would still push for the billions in make whole, disgorgement and civil penalty payments but may allow CZ et al to avoid admission of guilt,” the analyst added.

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Since its inception in 2017, has allegedly taken a “calculated, phased approach to increase its United States presence despite publicly stating its purported intent to ‘block’ or ‘restrict’ customers located in the United States from accessing its platform,” the filing reads, alleging that the company’s top management and CEO knowingly solicited US users, luring high net worth individuals with its VIP program. Another benefit provided by the company for its VIP US customers was prompt notification about any law enforcement requests regarding their accounts.

In a complaint, CFTC cited private messages and company documents to strengthen its case. And some of the exchanges between Zhao and Binance’s c-suite execs are so unhinged that they already gained meme status within the crypto community.

For instance, in February 2019, after being notified about an alleged HAMAS transaction on Binance, Samuel Lim explained to his colleague that terrorists usually send small sums, as “large sums constitute money laundering.” Lim’s colleague replied, “Can barely buy an AK47 with 600 bucks.”

In October 2022, Binance underwent a compliance audit but purposefully engaged auditor that would “just do half assed individual sub audit on geo[fencing]” to “buy us more time,” as Lim put it at the time. Around the same time, Binance’s money laundering reporting officer exclaimed to Liam in a chat, “I HAZ NO CONFIDENCE IN OUR GEOFENCING.”

“They keep violating Stringer Bell’s dictum on the wisdom of keeping written notes of a criminal conspiracy,” Stripe adviser Patrick McKenzie ironically remarked on Twitter.

“If you're going to be a good criminal organization, have entire teams, policies, and communication channels to help reduce the fraud friction. Make sure it's in writing,” joked Twitter personality Chairman Birb Bernanke.