US regulators are aiming to prohibit Binance, which is the biggest cryptocurrency trading platform globally, on the grounds that the company has been conducting illegal operations within the country.
According to the Commodity Futures Trading Commission (CFTC), the legal action filed against Binance asserts that the firm pursued business in the US without proper registration and did not comply with various US financial laws, such as regulations designed to prevent money laundering.
Binance has claimed that it has made substantial investments to prevent US users from using its platform, such as implementing blocks for individuals with a US mobile number, American residency, or citizenship.
This filing is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the US and around the world," the firm said.
"The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime."
Binance which was stablished in 2017, is currently the biggest centralized platform for trading digital assets worldwide, with over 100 million users across the globe.
Its operations are headed by Changpeng Zhao, a Canadian billionaire of Chinese descent, who was also mentioned in the allegations made against the company.
The CFTC claimed that Binance has been conducting business in the US since 2019 without proper registration and without adhering to applicable US laws. The company allegedly utilized a global corporate structure that was intentionally ambiguous, which allowed it to evade regulation.
During most of this time, according to the CFTC's lawsuit filed in a federal court in Illinois, Binance did not require its users to provide any identity verification before participating in trades on the platform
While Binance announced in 2021 that it was making its rules more stringent, the CFTC alleged that the company advised US-based clients on how to bypass these measures by using virtual private networks (VPNs) and shell companies. The CFTC further stated that Binance evaded the rules to maximize its corporate profits.
It requested that the US court impose restitution and fines, along with permanent bans on trading and registration.
According to CFTC chairman Rostin Behnam, the US government filed the case against Binance to safeguard American investors, and it should also serve as a broader warning to others working in the cryptocurrency industry.
"For years, Binance knew they were violating CFTC rules, working actively to both keep the money flowing and avoid compliance. This should be a warning that the CFTC will not tolerate wilful avoidance of US law," he said.
Around the time the lawsuit was announced, Mr Zhao posted on Twitter a message that read "4" - apparently referring followers back to advice in an earlier post urging people to "ignore .... fake news, attacks, etc."
In recent years, the crypto industry has experienced significant growth but has faced challenges such as price volatility and regulatory scrutiny. US regulators have been increasingly enforcing existing laws to address issues such as conflicts of interest and lack of transparency. The CFTC has pursued more than 20% of its cases related to the sector, including actions against Bitfinex and Tether, and has also brought fraud charges against Sam Bankman-Fried and FTX, which was previously a major competitor to Binance.