CFTC Secures Court Approval for $2.7B Settlement with Binance

Chicago, IL – The Commodity Futures Trading Commission (CFTC) has reached a critical milestone in its continued efforts to defend financial rules and safeguard consumers‘ and investors’ interests. The Illinois Northern District Court has formally authorized the previously announced settlement and filed a consent order against Changpeng Zhao and his cryptocurrency exchange, Binance, totaling $2.7 billion in fines and compensation.

The court's decision follows months of inquiry and talks, as well as the settlement's first announcement on November 21. The court determined that Zhao and Binance violated the Commodity Exchange Act (CEA) and CFTC rules, resulting in harsh penalties for the persons and firms implicated.

Key Highlights of the Court Order:

1. Civil Monetary Penalty: Changpeng Zhao, the founder of Binance, has been personally slapped with a substantial $150 million civil monetary penalty. This decision underscores the seriousness of the violations committed by Zhao and his companies.

2. Disgorgement of Ill-Gotten Fees: Binance has been ordered to disgorge a staggering $1.35 billion in ill-gotten transaction fees. This amount reflects the profits earned through activities that violated regulatory standards.

3. CFTC Penalty: In addition to disgorgement, Binance is required to pay a $1.35 billion penalty to the CFTC, further emphasizing the financial consequences of regulatory non-compliance.

4. Improved Compliance Controls: Zhao and Binance are obligated to provide certifications regarding the existence, application, and effectiveness of Binance's improved compliance controls. This step is vital in ensuring that the violations do not recur in the future.

5. Permanent Injunction: The court's decision also permanently enjoins Changpeng Zhao and Binance from further violations as charged, reinforcing the commitment to adhere to legal and regulatory requirements.

The court's order reaffirms several critical findings from the CFTC's investigation:

• Binance, under Zhao's direction, actively solicited customers in the United States, including quantitative trading firms, despite knowing that these activities violated the Commodity Exchange Act.

• Binance allowed at least two prime brokers to open “sub-accounts” without subjecting them to the necessary “know your customer” (KYC) procedures, enabling U.S. customers to trade directly on the platform.

• Zhao and Binance were well aware of U.S. regulatory requirements but chose to disregard them, concealing the presence of U.S. customers on the platform. Senior management at Binance actively facilitated these violations, instructing U.S. customers to evade compliance controls.

In response to the court's order, Binance and Zhao have taken several steps to rectify the situation. They have certified that they have offboarded the quantitative trading firms identified in the CFTC's complaint, as these firms did not meet Binance's improved onboarding criteria. Additionally, Binance and Zhao have pledged to ensure that all customers, whether using primary or sub-accounts, must complete the KYC onboarding procedures.

The court's ruling sets further conditions for Binance and Zhao. Binance will no longer allow existing sub-accounts to circumvent compliance measures, including those created by prime brokers. After implementing all KYC regulations and processes, any account that fails to fulfill compliance criteria will be deactivated. Furthermore, Binance will establish a corporate governance structure that comprises an independent Board of Directors, a Compliance Committee, and an Audit Committee.

Binance's former Chief Compliance Officer, Samuel Lim, was sentenced to pay a $1.5 million civil monetary penalty in a separate decision made by Judge Manish S. Shah. This punishment derives from Lim's participation in aiding and abetting Binance's offenses and participating in operations outside of the United States to escape U.S. law on purpose.

The CFTC's successful conclusion of this matter reflects the agency's commitment to enforcing financial rules and ensuring that cryptocurrency companies comply with the same requirements as conventional financial institutions. It also sends a strong signal that regulatory monitoring is critical in the quickly changing world of cryptocurrencies.

About the Commodity Futures Trading Commission (CFTC)

The CFTC is an independent organization of the United States government in charge of regulating the United States' derivatives markets, which include futures, options, and swaps. The CFTC's objective is to enhance the integrity, resilience, and vitality of the United States' derivatives markets via effective regulation and supervision. More information is available at www.cftc.gov.