Binance Settles with CFTC for $2.7 Billion
Binance and its former CEO, Changpeng Zhao, reach a historic $2.7 billion settlement with the CFTC, including a complete overhaul of its governance structure.
In a landmark decision, a federal judge approved a substantial settlement between cryptocurrency exchange Binance and the Commodity Futures Trading Commission (CFTC), marking a significant turning point in the regulatory landscape of the crypto industry. The settlement concludes a series of legal challenges for Binance, spearheaded by its former CEO, Changpeng Zhao, known as ‘CZ’.
The court ordered Binance to pay a hefty sum of $2.7 billion, which includes a $1.35 billion penalty and the disgorgement of an equal amount in “ill-gotten transaction fees.” This decision follows the CFTC’s allegations that Binance, under Zhao’s leadership, had violated the Commodity Exchange Act and CFTC regulations. Notably, Changpeng Zhao himself is subject to a $150 million civil monetary penalty, to be paid partly within the next 30 days.
This settlement, confirmed on December 14 by Judge Manish Shah in the U.S. District Court for the Northern District of Illinois, represents a culmination of years-long probes by multiple federal agencies, including the CFTC, Treasury Department, and Justice Department. The investigation revealed that Binance, at Zhao’s direction, solicited U.S. customers and was conscious of U.S. regulations but “chose to ignore them.”
The CFTC’s allegations further claimed that Binance allowed prime brokers to open unregulated “sub-accounts,” enabling direct trading by U.S. customers without proper know-your-customer (KYC) procedures. This facilitated evasion of compliance controls and violated U.S. laws.
In response to these allegations, the settlement mandates a complete revamp of Binance’s corporate governance. This includes the establishment of a board of directors with independent members, a compliance committee, and an audit committee. These measures aim to ensure that Binance adheres to regulatory standards and prevents future legal violations.
Furthermore, Zhao, who pleaded guilty to anti-money laundering and sanctions violations, has stepped down as chairman of the board of directors for Binance.US. This move effectively removes his influence from Binance.US’s governance, rendering his interest in the U.S. arm of the exchange purely economic.
The court order also stipulates that Zhao and Binance must provide proof of the effectiveness of their improved compliance controls, along with permanent injunctions to prevent further violations. This legal development is a clear signal to the crypto industry about the importance of adhering to regulatory standards and the consequences of non-compliance.
In conclusion, the settlement between Binance and the CFTC marks a pivotal moment in the crypto industry’s journey towards regulatory compliance. The hefty financial penalties and the imposed governance restructuring serve as a stern reminder of the critical need for transparent and compliant operations within the rapidly evolving digital currency market.
