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Federal Judge Approves Historic Settlement in Binance-CFTC Case

In a watershed moment for the cryptocurrency industry, a federal judge has greenlit a monumental settlement between Binance, one of the world’s largest crypto exchanges, and the Commodity Futures Trading Commission (CFTC). The resolution comes on the heels of the exchange’s former CEO, Changpeng Zhao, pleading guilty to charges related to anti-money laundering (AML) violations, marking a significant chapter in the ongoing scrutiny of digital asset platforms by regulatory bodies.

The settlement, approved by Judge Manish Shah in the U.S. District Court for the Northern District of Illinois, sets a precedent with staggering financial implications. Zhao himself will be personally liable for a staggering $150 million, with a third of this mammoth sum due within the next 30 days. Simultaneously, Binance faces a monumental penalty totaling $1.35 billion, in addition to disgorging an equal amount of “ill-gotten transaction fees,” as decreed by the court order signed on December 14.

The CFTC, in a statement following the court’s approval, emphasized the formalization of the settlement initially announced on November 21. The court’s ruling underscored Zhao and Binance’s contravention of the Commodity Exchange Act (CEA) and CFTC regulations, imposing substantial penalties and equitable relief. It permanently enjoins them from further violations as charged and mandates certifications regarding Binance’s compliance controls’ existence, application, and efficacy.

The case background elucidates a deliberate strategy employed by Binance, orchestrated under Zhao’s direction, to actively court U.S. customers, including quantitative trading firms, for digital asset derivative transactions on its platform. Despite its Terms of Use and U.S. regulatory awareness, Binance facilitated sub-accounts devoid of proper KYC procedures for at least two prime brokers, enabling U.S. customers to trade directly while deliberately concealing their presence. Moreover, senior management, including Zhao, allegedly not only ignored but actively encouraged violations of U.S. law, instructing U.S. customers to evade compliance controls.

As part of the settlement, Binance and Zhao certified post the CFTC’s complaint that the exchange offboarded identified quantitative trading firms not meeting enhanced onboarding criteria. Additionally, any customer seeking to onboard, whether through primary or sub-accounts, must complete full KYC procedures. Stricter mandates demand Binance cease allowing existing sub-accounts to bypass compliance controls, offboard non-compliant accounts, and enforce a corporate governance overhaul incorporating independent directors and compliance and audit committees.

In a parallel development, former Chief Compliance Officer Samuel Lim faces a separate order mandating a $1.5 million civil monetary penalty for aiding and abetting Binance’s violations and willful attempts to evade U.S. law outside its jurisdiction.

The ramifications of this settlement reverberate across the cryptocurrency landscape, signifying a turning point in regulatory oversight. It underscores the imperative for robust compliance frameworks within crypto exchanges and the severe consequences of flouting regulatory norms, setting a precedent for accountability in an industry navigating the delicate balance between innovation and adherence to established laws.

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