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U.S. District Court Greenlights Unprecedented Agreement Amidst Violations
- CFTC secures court approval for an unprecedented settlement with Binance, marking a historic moment in regulatory oversight.
- Changpeng Zhao and Binance found in violation of Commodity Exchange Act and CFTC regulations, leading to a $150 million penalty for Zhao and a $1.35 billion disgorgement by Binance.
- Certifications demand corrective actions, including offboarding non-compliant entities, stringent KYC procedures, and the implementation of a robust corporate governance structure.
The Commodity Futures Trading Commission (CFTC) has achieved a significant milestone with the approval of a historic settlement involving Binance. The U.S. District Court for the Northern District of Illinois in a recent publication has given its nod to the settlement, marking a crucial development in the regulatory landscape.
The settlement, receiving court approval, entails a consent order comprising a permanent injunction, civil monetary penalty, and equitable relief against Changpeng Zhao and Binance. This underscores the gravity of the violations committed by the cryptocurrency exchange.
Changpeng Zhao, along with Binance, has been found in violation of the Commodity Exchange Act (CEA) and CFTC regulations. The court has imposed a substantial $150 million civil monetary penalty directly on Zhao, emphasizing the accountability of the individual at the helm. Additionally, Binance is required to disgorge $1.35 billion in ill-gotten transaction fees and pay an equivalent penalty to the CFTC, highlighting the financial consequences of the misconduct.
Also Read: Binance Crackdown Spurs Unprecedented Wave of Crypto Surveillance Measures
Case Background and Violations
The case revolves around the active solicitation of U.S. customers by Binance under the direction of Changpeng Zhao. Despite regulatory constraints, the cryptocurrency exchange engaged in attracting customers, including quantitative trading firms, within the United States. This sets the stage for understanding the context of the violations.
Binance’s own Terms of Use were violated as the exchange permitted at least two prime brokers to open “sub-accounts” without adhering to Know Your Customer (KYC) procedures. Furthermore, U.S. customers were allowed direct trading access on the platform, circumventing established regulations.
Key Violations:
Findings reveal a conscious disregard for U.S. regulatory requirements by Zhao and Binance. Despite being aware, they deliberately chose to ignore these regulations and concealed the presence of U.S. customers on their platform. This points to a willful violation of established norms and regulations.
Senior members of Binance’s management actively facilitated these violations, instructing U.S. customers to evade compliance controls. The deliberate concealment of U.S. customers on the platform adds another layer to the cryptocurrency exchange’s misconduct.
Enforcement Measures and Additional Certifications
In response to the CFTC’s complaint, Binance and Zhao have made certifications outlining corrective actions. Notably, the cryptocurrency exchange has offboarded quantitative trading firms that did not meet the newly enhanced onboarding criteria. This signals a proactive approach to rectifying past shortcomings.
An emphasis on KYC onboarding procedures for all customers, whether entering through primary or “sub-accounts,” has been underscored. This commitment to comprehensive onboarding procedures is pivotal in aligning with regulatory expectations.
Additional Certifications and Orders:
To further ensure compliance, additional certifications are mandated. Binance is tasked with preventing sub-accounts, including those opened by prime brokers, from bypassing compliance controls. The enforcement measures extend to the offboarding of accounts failing to meet these controls after thorough application of KYC policies.
A noteworthy aspect is the implementation of a robust corporate governance structure. This includes a Board of Directors with independent members, a Compliance Committee, and an Audit Committee. This aims to fortify Binance’s internal checks and balances to prevent future regulatory infractions.
In a parallel development, a separate order has been issued, requiring Binance’s former Chief Compliance Officer Samuel Lim to pay a $1.5 million civil monetary penalty for aiding and abetting Binance’s violations. This underscores individual accountability within the organization.
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