Why the CFTC lawsuit is becoming dangerous for Binance

The list of alleged law violations brought to light by the 78-page indictment is lengthy and shocking: it reveals internal chat histories between Binance CEO Changpeng Zhao, employees, and former Chief Compliance Officer Samuel Lim.

Gloomy glimpses of the Binance empire

A few examples: An employee informs Lim about $5 million in transactions from “criminal sources” and asks if the client should be taken off the platform. The Chief Compliance Officer replies, “I can advise him to be careful with his money flow, especially from the dark web like Hydra. He can come back with a new account, but the current one has to go, it’s spoiled.”

Elsewhere, transactions originating from the radical Islamic terrorist organization Hamas are openly discussed. Illegal activities by Russian customers are answered with: “Come on. They’re here for crimes.” An employee’s response: “We see evil, but close both eyes.” US customers, who are not actually allowed to trade on Binance, are advised to conceal their identity. It goes on like this, up to indications of market manipulation. “The most important asset of financial companies is their reputation towards customers and regulators,” says Peter Grosskopf, CEO of Unstoppable Finance. “That reputation is now tarnished, if not destroyed forever.”

This is how lawyers assess the Binance case

“At least much of the lawsuit appears to be well-founded, with ample evidence and communications up to and including management. The allegation is serious,” says US attorney Philipp Behrendt. An out-of-court settlement can only be reached at high cost for the defendant – and not only in monetary terms, but also in terms of existence: “The CFTC only seems willing to reach an agreement if Binance shuts down at least its entire US business returns profits from US business and accepts a fine.”

“The allegations are undeniably large,” agrees attorney Phil Hamacher, who specializes in crypto among other things. “In particular, that Binance is said not to have hidden terrorist financing with open eyes. That will have to be investigated.” The lawsuit is not based solely on the chat history. “You are one piece of the puzzle among many. All will have to be followed up.”

The lawyers agree: Even more crucial than this case will be what the Department of Justice does next. According to Reuters, it has been investigating Binance since 2018. A lawsuit is pending. It could have far more serious consequences. According to Reuters insiders, it should go to money laundering and the circumvention of sanctions. Other authorities could also follow suit. The SEC has been on trial with Binance for “illegal securities issuance” since 2022.