In formalizing the settlement initially announced on November 21 [See CFTC Press Release No. 8825-23], the court finds Zhao and Binance violated the Commodity Exchange Act (CEA) and CFTC regulations, imposes a $150 million civil monetary penalty personally against Zhao, and requires Binance to disgorge $1.35 billion of ill-gotten transaction fees and pay a $1.35 billion penalty to the CFTC. The order also obligates Zhao and Binance to make certifications as to the existence, application, and efficacy of Binance’s improved compliance controls, and permanently enjoins them from further violations as charged. [See CFTC Press Release No. 8680-23]

Case Background

As previously announced, the order finds Binance, at Zhao’s direction, actively solicited customers in the United States, including quantitative trading firms, who entered into digital asset derivative transactions directly on the Binance platform. In violation of its own Terms of Use, Binance also allowed at least two prime brokers to open “sub-accounts” that were not subject to Binance’s know your customer (KYC) procedures and enabled U.S. customers to directly trade on the platform. The order further finds Zhao and Binance were aware of U.S. regulatory requirements, but chose to ignore them and knowingly concealed the presence of U.S. customers on the platform. The order also finds Zhao and other members of Binance’s senior management actively facilitated violations of U.S. law, including instructing U.S. customers to evade compliance controls.

In connection with the order, Binance and Zhao have certified that, subsequent to the filing of the CFTC’s complaint, Binance has offboarded the quantitative trading firms identified in the CFTC’s complaint as they do not meet Binance’s improved onboarding criteria. Binance and Zhao also certified that any customer who seeks to onboard, whether through a primary or “sub account,” must complete all KYC onboarding procedures. The order requires Binance and Zhao to make additional certifications, including that Binance will no longer allow existing sub-accounts, including those opened by prime brokers, to bypass the platform’s compliance controls. Also, after applying all KYC policies and procedures to all existing sub-accounts, Binance will offboard every account that fails to meet its compliance controls. In addition, the order requires Binance and Zhao to certify Binance will implement a corporate governance structure that includes a Board of Directors with independent members, a Compliance Committee, and an Audit Committee.

A separate order, also issued 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 willfully evade or attempt to evade U.S. law.

The Division of Enforcement staff responsible for this matter are Candy Haan, Joseph Platt, Joseph Patrick, Katherine Paulson, Matthew Edelstein, Ray Lavko, William P. Janulis, Margaret Aisenbrey, Elizabeth N. Pendleton, Scott R. Williamson, and Robert T. Howell.