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In a significant development, the U.S. District Court for the Northern District of Illinois has approved and entered a consent order of permanent injunction, civil monetary penalty, and equitable relief against Changpeng Zhao and Binance Holdings Limited.
The Commodity Futures Trading Commission (CFTC) announces the court’s approval of the settlement.
Binance to Pay CFTC $1.35 Billion
The court finds Zhao and Binance in violation of the Commodity Exchange Act (CEA) and CFTC regulations. It further accusses Binance, under Zhao’s direction, for actively soliciting U.S. customers, including quantitative trading firms, for digital asset derivative transactions, violating its own Terms of Use.
Furthermore, the court finds that Binance allowed prime brokers to open “sub-accounts” not subject to Binance’s know your customer (KYC) procedures. Zhao and Binance knowingly concealed the presence of U.S. customers on the platform.
As part of these accusations, Binance must pay a $1.35 billion penalty to the CFTC. Moreover, Binance is also required to disgorge $1.35 billion of ill-gotten transaction fees. On the other hand, Changpeng Zhao will pay $150 million civil monetary penalty personally.
A separate order by Judge Manish S. Shah requires Binance’s former Chief Compliance Officer Samuel Lim to pay a $1.5 million civil monetary penalty for aiding and abetting Binance’s violations and engaging in activities outside of the U.S. to evade U.S. law.
Compliance and Governance Measures
Binance and Zhao are required to make certifications regarding the existence and efficacy of improved compliance controls. They are permanently enjoined from further violations as charged.
As part of the court’s order, Binance and Changpeng Zhao (Zhao) have provided certifications outlining their post-complaint actions. Following the filing of the CFTC’s complaint, Binance has undertaken the offboarding of identified quantitative trading firms, previously mentioned in the CFTC’s complaint. Furthermore, both Binance and Zhao have certified that any customer intending to onboard, whether through a primary or “sub account,” must complete all know your customer (KYC) onboarding procedures.
The court-mandated order includes additional certifications from Binance and Zhao. Notably, it stipulates that Binance will no longer permit existing sub-accounts, including those initiated by prime brokers, to bypass the platform’s compliance controls. Additionally, after subjecting all existing sub-accounts to comprehensive KYC policies and procedures, Binance is obligated to offboard any account that fails to meet its compliance controls.
The order requires Binance and Zhao to provide certifications affirming Binance’s implementation of a robust corporate governance structure. This resolution marks a significant step in the CFTC’s enforcement actions against Binance and its former CEO, imposing substantial penalties and emphasizing compliance measures to prevent future violations.
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