Binance is facing serious legal challenges across several countries. In Canada, it is involved in a class-action lawsuit for allegedly selling unregistered crypto derivatives to retail investors. In Kenya, a Binance executive has been arrested and might be extradited to Nigeria to face charges including tax evasion and money laundering. The Philippines Securities and Exchange Commission has also taken action against Binance, instructing tech giants to remove its app from stores and blocking its website.
Legal Troubles Mount for Binance in Canada
Binance is facing a new class-action lawsuit in Canada. The Ontario Superior Court of Justice published a certification motion for the lawsuit on Apr. 19, which claims that Binance unlawfully sold cryptocurrency derivatives to retail investors without the proper registration, in violation of the Ontario Securities Act (OSA) and federal law. The plaintiffs, who are represented by Christopher Lochan and Jeremy Leeder, are seeking damages and rescission of these allegedly unlawful trades. The plaintiffs also pointed out that tens of thousands of Canadian Binance users ended up investing in its crypto derivatives products.
This comes despite Binance's previous announcement in June of 2021 that it would completely stop operations in Ontario after a warning from the Ontario Securities Commission (OSC). However, Binance failed to stick to this, leading to more regulatory actions. The OSC notified Binance in early 2022 of its intention to seek a cease trade order, and despite announcing its complete exit from Canada in May of 2023, the OSC's investigation into Binance continues.
Binance holds a very dominant position in the crypto trading market as it accounts for 58% of total spot trading volumes among centralized exchanges as of March 2024. It also operates the largest derivatives market in the sector, which, according to data from Bybit, is almost entirely dominated by Binance, along with other exchanges like OKX and Bybit. This new lawsuit is also shining some light on just how involved retail investors are in the cryptocurrency derivatives market. In fact, the Ontario Securities Commission revealed that more than 50% of Canadian crypto owners have at least $5,000 invested in the market.
What are Crypto Derivatives?
Crypto derivatives are financial instruments whose value is derived from underlying cryptocurrency assets. These derivatives allow traders to speculate on the future price movements of cryptocurrencies without actually owning them. This market offers opportunities for big gains due to the inherent volatility of cryptocurrencies. Traders can engage in these derivatives through specialized crypto exchanges or through traditional financial exchanges.
The main reasons for trading crypto derivatives include speculation, hedging, and leveraging. Speculation allows traders to profit from price fluctuations by taking long or short positions. Leverage, a key feature of derivatives, allows traders to control large positions with a relatively small capital outlay, amplifying both potential gains and risks. Hedging serves as a risk management strategy, helping traders offset potential losses from their positions in the crypto market by taking opposite positions.
While trading crypto derivatives can be financially beneficial—offering possibilities for cheaper trading costs, risk mitigation, potential high returns through leveraged positions, and portfolio diversification—it also comes with a lot of risks. These risks include the high volatility of crypto markets, potential legal and compliance issues depending on jurisdiction, and counterparty risks, especially in over-the-counter trades that lack the regulatory oversight of exchanges.
Binance Executive Detained in Kenya
Binance’s troubles are not limited to the Americas. Nadeem Anjarwalla, a dual British and Kenyan national working for Binance, has reportedly been arrested in Kenya after he fled Nigeria in March. Anjarwalla initially traveled to Nigeria along with another Binance executive, Tigran Gambaryan, as allegations started making the rounds that the exchange manipulated Nigeria’s currency, the naira. After Binance's decision to stop all transactions in naira, authorities in Nigeria detained both executives. Anjarwalla managed to escape from Nigeria on Mar. 22 after he was taken to a mosque for prayers and subsequently used his Kenyan passport to board a plane from Abuja.
Since his escape, Kenyan police have arrested Anjarwalla, and there is now potential for his extradition back to Nigeria to face criminal charges, including tax evasion and money laundering. Despite this, the specifics of how Anjarwalla was able to leave Nigeria in the first place are somewhat unclear, as Nigerian authorities confiscated only his U.K. travel documents.
Gambaryan’s wife has started a petition for his return to the United States, claiming he was unjustly implicated and had no major decision-making authority at Binance.
Philippines SEC Orders Removal of Binance App from Stores
Meanwhile, the Philippines Securities and Exchange Commission (SEC) has taken decisive action against Binance by instructing Google and Apple to remove its app from their app stores in the Philippines. This order was issued after the SEC determined that Binance was operating as an unregistered broker and offering unregistered securities to local users, which violates the country’s securities regulations. In a recent press release, the SEC explained that these measures were necessary to mitigate the risk to Filipino investors and prevent the further illegal activities of Binance in the country.
This development follows the SEC and the National Telecommunications Commission's (NTC) earlier decision to block access to Binance's websites starting Mar. 25. The SEC has been actively warning the public against using Binance for investment purposes since November of 2023, as it does not have the proper license to operate a securities exchange or to solicit investments.
Despite Binance's global presence and its recent efforts to comply with international regulations, like paying fines and getting licenses in other countries such as India and Dubai, the Philippines' SEC is still firm on its stance. The crackdown is part of a broader initiative that began in February when the SEC and NTC moved to eliminate unlicensed crypto trading platforms. Though Binance initially escaped these restrictions, the recent enforcement signals a strict adherence to local laws.
Thailand to Block Unlicensed Crypto Exchanges
Thai authorities have also announced their plans to block unlicensed crypto exchanges from operating in the country. The main goal of this is to curb money laundering and other illicit online activities. Inspired by similar actions in India and the Philippines, Thailand's SEC is getting ready to submit a list of these unlicensed exchanges to the Ministry of Digital Economy and Society to enforce this ban.
The SEC has advised the public to withdraw their investments from these platforms as quickly as possible to avoid any potential legal and financial issues. According to the SEC, engaging with these unregistered platforms could expose users to scams and money laundering risks. This is why the regulator believes it is so important to verify the licensure of platforms through the SEC Check First application.
The global regulatory landscape for crypto is also becoming stricter and more complex. In Europe, the new Markets in Crypto-Assets (MiCA) framework is set to potentially introduce more stringent regulations on decentralized finance (DeFi) protocols by the end of the year. The European Commission is tasked with assessing the DeFi market and determining the feasibility of imposing specific regulatory measures.
This could lead to new licensing requirements for DeFi interfaces, a move that MakerDAO co-founder Rune Christensen suggests would restrict the operation of decentralized exchanges, pushing them towards either fully decentralized or full-KYC compliant models.
