Binance was just accused of undermining its own compliance program and operating illegally in the U.S. in a stunning, and stunningly detailed, 74-page lawsuit.
Industry watchers are still waiting for the other shoe to drop.
The Commodity Futures Trading Commission sued Binance on Monday, but experts pointing to the meticulously documented filing say it may not be the only federal agency to take the crypto behemoth and its CEO Changpeng Zhao to court over alleged wrongdoing.
The CFTC lawsuit, which says Binance purposely evaded compliance controls to maximize profits and has facilitated illegal activities, could prompt the Justice Department to file criminal charges. The complaint included headline-grabbing internal messages from Binance that mention the U.S.-designated terrorist organization Hamas, among other possible illicit activities on the platform.
“Once you start talking about cryptocurrency being a vehicle for transactions by terrorist or criminal networks, particularly those that may be subject to U.S. sanctions, that becomes an open invitation for criminal charges," said Jacob Frenkel, an attorney at the law firm Dickinson Wright who previously served as senior counsel in the Securities and Exchange Commission’s Division of Enforcement. "Whether we will see any is unclear.”
Internal messages in the CFTC complaint show that Binance executives discussed transactions by Hamas on the exchange in 2019. Binance officers even acknowledged some of their customers are “here for crime” on the platform, but said “we see the bad, but we close 2 eyes.”
SEC eyeing Binance?
If not the Department of Justice, others see the Securities and Exchange Commission potentially stepping in soon and launching its own enforcement action.
“It wouldn’t be unexpected for the SEC to pursue a separate action given how active they’ve been in the crypto exchange space,” said Marc Fagel, the former Regional Director of the SEC’s San Francisco office who now lectures at Stanford Law School. “Parallel CFTC and SEC actions raise difficult questions about whether digital assets are commodities or securities, although, as they did with the FTX, the regulators can find ways to navigate.”
An SEC spokesperson declined to comment on the possibility of the agency’s own possible action against Binance after the CFTC announcement on Monday.
Both markets regulators filed complaints against bankrupt crypto exchange FTX and its then-management team, alongside criminal indictments from the U.S. Justice Department.
When asked by The Block about the possibility of corresponding action from other parts of the U.S. government, CFTC Chair Rostin Behnam re-emphasized the violations of commodities laws that his agency saw Binance committing.
“This was ongoing violation of the law so I felt very strongly that we needed to move as quickly to stop and bring that violation under permanent injunction,” said Behnam during a break in testimony before a House of Representatives subcommittee on Tuesday.
The permanent injunction, if granted in court or agreed upon in a settlement, would ban Binance and its CEO from continuing to facilitate bitcoin, ether, litecoin, BUSD and USDT trades in the U.S.
“We’re going to take it one step at a time,” said Behnam.
A Binance spokesperson called the lawsuit “unexpected and disappointing” in a statement on Monday, while the company reiterated.
Binance’s alleged active evasion and flouting of U.S. law painted an especially bright target on them, experts argued.
“If there is anybody to make an example of after Sam Bankman-Fried, I would say it’s CZ,” said Rohan Grey, an assistant law professor at Willamette University. “The contempt by which he sort of showed the U.S. regulatory system, by operating everywhere it wasn’t, while still kind of dominating the U.S. crypto ecosystem.”
‘Sticking your middle finger up in front of the FBI’
The U.S. won’t leave that alone, Grey added.
“It was a real sticking your middle finger up in front of the FBI building and hoping that you don’t get arrested,” Grey said.
The most unexpected part of Monday’s news may have been the agency that filed first. The CFTC’s complaint against Binance included more detail than a typical enforcement action from the regulator, throwing observers a bit of a curveball.
“What is clear, though, is that all major financial regulators are jockeying for position to regulate crypto,” said Aaron Kaplan, co-CEO of Prometheum, a digital asset security market infrastructure company.
Behnam, the CFTC chair, told reporters on Tuesday that in addition to sending a message to other exchanges, he wants the complaint, which pseudonymously identifies three investment firms that used Binance for digital asset trades, to also be cognizant of whether platforms they use follow the law.
“We have registered derivatives exchanges that offer crypto futures and options and swaps here in the U.S.," noted Behnam.
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