FTC v. Binance: Binance Accused of Purposefully Ignoring U.S. Regulatory Requirements

V. FACTS

G. Binance Was Aware of United States Regulatory Requirements but Ignored Them

108. Defendants have been aware of the regulatory regime that applies to U.S. financial institutions such as FCMs, and exchanges such as DCMs and SEFs, throughout the Relevant Period, but have made deliberate, strategic decisions to evade federal law.

109. Internal messages among Zhao, Lim, and other Binance senior managers document that Binance was aware of the applicability of U.S. regulatory and legal requirements since its early days. For example, in October 2018, and before the Relevant Period, Lim wrote to Zhao:

Cz I know it’s a pain in the ass but its my duty to constantly remind you

1. We have made no mention of sanctions/or support of sanctions on our platform already (done, cleaned up)

2. Are we going to proceed to block sanction countries ip addresses (we currently have users from sanction countries on .com)

Or do you want to adopt a clearer strategy after we engaged and finalised our USA strategy?

Downside risk is if fincen or ofac has concrete evidence we have sanction users, they might try to investigate or blow it up big on worldstage

110. Two months later, in a December 2018 chat, Lim acknowledged that Binance was operating “in the USA” and advised his colleagues that “there is no fking way in hell I am signing off as the cco for the ofac shit.” In that same chat, Lim recognized that Binance’s customer support was “teaching ppl how to circumvent sanctions.”

And Lim stated in an October 2019 chat: “the ofac regulation clearly states U.S. persons, doing biz with OFAC is wrong,” but clarified that Zhao desired to place competitive advantage over compliance: “thing is [Zhao] will only agree to block US on .com once US exchange has gotten all [money transmitter licenses] (to match [a U.S.-based digital asset exchange]).”

111. In December 2019, approximately three months after Binance began offering quarterly futures and perpetual contracts, Lim wrote to a colleague in a chat:

1. We still have US users on our platform (regulatory risk) 2. We do not perform Worldcheck on .com (sanctions risk) 3. We do not perform [transaction monitoring] on .com (sanctions risk).

112. Lim has displayed a nuanced understanding of applicable regulatory requirements and the potential individual liability that may accompany a failure to comply with U.S. law. For example, in October 2020 Lim chatted to a colleague:

US users = CFTC = civil case can pay fine and settle

no kyc = BSA act [sic] = criminal case have to go [to] jail

113. Zhao has also been keenly aware of U.S. laws that apply to Binance’s activities.

For example, Zhao explained during a June 9, 2019 management meeting:

[T]here are a bunch of laws in the US that prevent Americans from having any kind of transaction with any terrorist, and then in order to achieve that, if you serve US or US sanctioned countries there are about 28 sanctioned countries in the US you would need to submit all relevant documents for review [but that is not] very suitable for our company structure to do so. So, we don’t want to do that and it is very simple if you don’t want to do that: you can’t have American users. Honestly it is not reasonable for the US to do this . . . .

[U.S. regulators] can’t make a special case for us. We are already doing a lot of things that are obviously not in line with the United States.

114. Zhao has kept information reflecting Binance’s U.S. customer base secret even from certain senior managers and has been cautious in circulating internal materials to a broad audience due, at least in part, to the risk that inculpatory information could be leaked to regulators or other law enforcement personnel. On information and belief, Binance refers to this type of risk as “leak risk.”

For example, in a March 2019 discussion regarding the circulation of data that categorized Binance users by geographic location, Zhao said “Let me see it first then, and not distribute it, especially guys who have to deal with US regulators.” And in an August 2020 chat, Zhao instructed a Binance employee that transaction volume data concerning U.S. API customers should not be published to a group; rather, such data should be sent only to Zhao.