A civil lawsuit filed by the US Commodity Futures Trading Commission (CFTC) filed yesterday against the world’s biggest cryptocurrency exchange, Binance, alleges the exchange violated several commodity exchange regulations by failing to curb US customers from using its derivatives products and knowingly engaging in the facilitation of criminal transactions. Also named in the 74-page lawsuit are CEO Changpeng Zhao (CZ) and ex-COO Samuel Lim.
The lawsuit refences internal communications regarding customers known to be depositing funds to Binance from darknet markets as well as accounts associated with designated terrorist organizations like Hamas.
One reference in the lawsuit directly mentions Hydra via a written conversation between lower level Binance employees and Lim, a former Chief Compliance Officer at the exchange. In July 2020, Lim was asked if a customer with “over 5m USD worth of transactions… sourced from questionable services” should be denied exchange services or if the user should be allowed to make a new account. Lim responded by telling the employee to let the customer know they should be “careful with flow of funds, especially from darknet like hydra,” and that “he can come back with a new account.”
Monthly dollar totals of Bitcoin sent to Binance from Hydra. Source: Crystal Blockchain
The CFTC alleges the above instance is just one of many where Binance tolerated use of their platform for “illicit activity” under the implicit direction of CEO Zhao, who allegedly told Lim that “offboarding” customers was “bad.” Another such instance occurred in Feb 2019 when Lim seemed to acknowledge the exchange was being used by terrorist organizations, who sent funds to Binance in small amount as “large sums constitute money laundering.” In Feb 2020, Lim wrote regarding customers from Russia, “Like come on. They are here for crime.”
Binance had previously been connected to cryptocurrency inflows from Hydra, the former Russia-based darknet marketplace. According to data provided by two separate blockchain analysis firms, Binance processed around $780 million in crypto transactions to and from Hydra between 2017 and 2022. This amount is similarly matched by LocalBitcoins, which closed last month after 10 years in operation, and Bitzlato, the recently-sanctioned no-KYC cryptocurrency exchange.
The exchange has been under investigation by the US Department of Justice since 2018 for “allegedly flouting U.S. compliance laws, anti-money laundering rules, and sanctions.”