Binance Probed by CFTC Over Whether U.S. Residents Made Trades

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Binance Holdings Ltd., the largest cryptocurrency exchange, is being investigated by the Commodity Futures Trading Commission over concerns that it allowed Americans to place wagers that violated U.S. rules, according to people familiar with the matter.

The CFTC is seeking to determine whether Binance, which isn’t registered with the agency, permitted U.S. residents to buy and sell derivatives that the regulator polices, said the people, who asked not to be identified because the probe is confidential. Binance, which has an office in Singapore but says it lacks a single corporate headquarters, hasn’t been accused of misconduct and the investigation may not lead to an enforcement action.

The scrutiny is the latest sign that market watchdogs may thwart the crypto industry’s ambitions of becoming more mainstream for U.S. investors. The CFTC considers virtual currencies like Bitcoin and Ether to be commodities and claims jurisdiction over their futures and other derivatives. That means crypto platforms face strict customer protection and oversight demands if Americans are trading on them -- regardless of where exchanges are based.

Binance said that it never comments on its communications with regulators, while adding that the company is committed to complying with rules. For instance, Binance blocks U.S. residents from its website and uses advanced technology to analyze deposits and withdrawals for signs of illicit transactions, the company said in a statement.

“We take a collaborative approach in working with regulators around the world and we take our compliance obligations very seriously,” Binance said. The CFTC declined to comment.

U.S. Crackdown

The investigation adds to the U.S.’s growing crackdown on crypto. The CFTC has already sued BitMEX for failing to register as a broker, with the exchange’s market share declining since it became a target of regulatory scrutiny. Coinbase Global Inc., the U.S.’s biggest crypto exchange, also disclosed last month that it’s responding to a wide-ranging CFTC probe.

Separately, the U.S. Treasury Department is considering new rules that would force banks to record the identities of those who invest in virtual assets. While advocates say the move would crack down on money laundering and other illegal activities, Bitcoin holders argue it would undermine a key draw of cryptocurrencies: the ability to send funds without government oversight.

An enforcement action against Binance, which has become emblematic of crypto’s meteoric rise, would be the highest-profile CFTC case tied to digital tokens. Company co-founder Changpeng Zhao regularly promotes the asset class on television and social media, saying it has helped make him a billionaire.

Zhao, who goes by CZ, has previously said Binance complies with U.S. rules. In 2019, Binance established San Francisco-based Binance.US, which Zhao has said is an independent entity for American customers. Still, he has acknowledged that improper trades may be slipping through the cracks.

“We have always blocked U.S. access, but users do find intelligent ways to get around our block sometimes and we just have to be smarter about the way we block,” he said in a November interview with Bloomberg.

Binance’s Growth

Zhou said in a Thursday statement that Binance likely operates in more global jurisdictions than any other exchange and is committed to keeping abreast of changing policies, rules and laws. Binance.US is registered with Treasury’s Financial Crimes Enforcement Network and holds several state licenses, he added.

12.03.21

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