TLDR – Mid-March 2021, the CFTC announced it was investigating Binance for potentially allowing US citizens to trade derivatives in violation of US law. This probe is the latest chapter in the company’s woes since Forbes published an article October 2020 alleging Binance engaged in an elaborate corporate structuring as a way to evade US regulatory scrutiny. Binance denied the allegations in the article, sued Forbes for defamation and then withdrew the lawsuit. Subsequently, Binance hired two former FATF executives and appointed former OCC Chair as Binance US CEO.
On 12 March 2021, Bloomberg reported that the US Commodity Futures Trading Commission (CFTC) was investigating Binance Holdings, Ltd. for allegedly permitting US clients to trade derivatives in violation of US rules. The article notes that Binance is not accused of wrongdoing and the investigation may not lead to prosecution.
The full article can be found here:
Interestingly, what the CFTC is investigating is exactly the alleged circumvention of US law that Forbes magazine first reported last year. On 29 October 2020, Forbes Magazine published an article written by staffers Michael del Castillo and Jason Brett suggesting that, based on an apparent Binance internal document dubbed “Tai Chi,” Binance had appeared to engage in an elaborate scheme to evade US regulatory enforcement around cryptoasset investment rules.
In the article, Forbes noted that Binance appeared to have taken certain steps to structure their business that matched the recommendations in the “Tai Chi” document.
The link to the original article appears here:
In the first few weeks following the article’s appearance, Binance founder Changpen Zhao, known as CZ, initially denied Forbes’s reporting then, in an interview with Bloomberg, noted that Binance has had difficulty in enforcing geographical restrictions among its user base. Eventually, Binance scrubbed its user base of US customers.
Binance filed a lawsuit against Forbes alleging defamation. Interestingly, Binance hired Charles Harder, the attorney best known for representing Hulk Hogan (Terry Gene Bollea) in a suit against Gawker Media that eventually led to Gawker’s demise when they ran out of funds to continue fighting against their lawsuit. Additionally, Binance’s lawsuit was filed in New Jersey, a state that doesn’t have any anti-SLAPP laws.
SLAPP refers to ‘Strategic Lawsuit Against Public Participation,’ defined as a nuisance suit designed to dissuade critics from publishing materials by burdening them with substantial legal costs.
Eventually, in February 2020, Binance withdrew the lawsuit against Forbes while maintaining the right to sue again on the same matter in the future.
Since the announcement of the CFTC investigation, Binance has made a number of key appointments; among them:
- Rick McDonell – former Financial Action Task Force (FATF) Executive Secretary and Executive Director to the Association of Certified Anti-Money Laundering Specialists (ACAMS)
- Josee Nadeau – former Head of the Canadian delegation to the FATF
McDonell and Nadeau’s responsibilities will include providing “high-level guidance on the organization’s global compliance and regulatory strategies” to ensure Binance has “a world-class compliance and risk management program.”
In a similar vein, Binance US announced that it had hired former acting head of the Office of the Comptroller of the Currency (OCC) Director Brian Brooks to serve as its CEO starting 1 May 2021. Prior to his stint at the OCC, Brooks served as Chief Legal Officer for Coinbase Global, Inc. which subsequently earned him the moniker of “CryptoComptroller” at the OCC for his positive attitude toward cryptoassets.
Binance US is the U.S. affiliate of Binance Holdings Ltd.
TechDirt has a brief analysis of the Binance lawsuit against Forbes as originally filed:
CryptoPotato covered the FATF appointments:
- Binance Hires Former FATF Executives to Strengthen Regulatory and Compliance Efforts (cryptopotato.com)
The Wall Street Journal report on Brooks’ hiring: