Binance and CZ Ordered to Pay Hefty Financial Penalty
The United States District Court for the Northern District of Illinois has ordered Binance, the world’s largest cryptocurrency exchange, and its former CEO Changpeng Zhao (CZ) to pay a substantial financial penalty. The ruling concludes a significant enforcement action initiated by the Commodity Futures Trading Commission (CFTC).
Violation of US Legislation and Terms of Service
An investigation conducted by the CFTC revealed that Binance and CZ aggressively targeted US clients, particularly quantitative trading firms, for digital asset derivative trades on the platform. This behavior violated both Binance’s own Terms of Service and US legislation. The investigation further discovered that Binance, under CZ’s supervision, allowed two prime brokers to create sub-accounts that bypassed Know Your Customer (KYC) requirements. This enabled US clients to trade directly on the platform, in violation of the Commodity Exchange Act (CEA) and CFTC rules.
Stricter Policies and Procedures
As part of the settlement, Binance and CZ have agreed to implement more stringent policies and procedures. This includes establishing a formal corporate governance structure, deleting non-compliant sub-accounts, and adopting rigorous KYC onboarding processes for all clients. The new structure will include a Compliance Committee, an Audit Committee, and a Board of Directors with independent members.
Legal Implications for CZ
In addition to financial penalties, CZ faces legal implications. He has agreed to plead guilty to violating federal anti-money laundering rules and will step down as CEO of Binance. CZ is expected to remain in the US until his sentencing on February 23, 2024, which could result in up to 18 months in jail. Richard Teng has been nominated as the new CEO of Binance.
Hot Take: Binance and CZ Face Consequences for Violating US Laws
The US District Court’s ruling holds Binance and its former CEO CZ accountable for aggressively targeting US clients and bypassing regulatory requirements. This enforcement action sends a strong message to the cryptocurrency industry that compliance with laws and regulations is paramount. The implementation of stricter policies and procedures demonstrates a commitment to rectifying past violations and ensuring future compliance. The legal implications for CZ highlight the serious consequences of disregarding anti-money laundering rules. With a new CEO at the helm, Binance has an opportunity to rebuild trust and operate within the boundaries of the law.
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