FTC v. Binance: Did Binance Guide Its Customers to Evade Compliance Controls?

V. FACTS

H. Binance Has Guided United States Customers to Evade Its Compliance Controls Through the Use of VPNs and Other Creative Means

115. During the Relevant Period, Binance implemented IP address-based compliance controls that collect a customer’s IP address and compare it to the list of countries Binance has purported to “restrict” from its platform. At least as of September 2019, the list of “restricted” jurisdictions included the United States.

Nonetheless, Binance’s IP address-based compliance controls, sometimes called “geofencing,” have not been effective at preventing customers from “restricted” jurisdictions including the United States from accessing and trading on the Binance platform.

116. One reason Binance’s IP address-based compliance controls have not been effective is that Binance has instructed U.S. customers to evade such controls by using VPNs to conceal their true location. VPNs have the effect of masking an internet user’s true IP address.

VPN use by customers to access and trade on the Binance platform has been an open secret, and Binance has consistently been aware of and encouraged the use of VPNs by U.S. customers.

117. At least as early as April 2019, Binance published a guide on the “Binance Academy” section of its website titled “A Beginner’s Guide to VPNs.” Binance’s VPN guide explained to Binance customers that “[i]f you want to be private about the websites you visit – and your location – you should use a VPN.” Binance’s VPN guide also hints: “you might want to use a VPN to unlock sites that are restricted in your country.”

118. Binance’s senior management, including Zhao, knew the Binance VPN guide was used to teach U.S. customers to circumvent Binance’s IP address-based compliance controls. In a March 2019 chat, Lim explained to his colleagues that “CZ wants people to have a way to know how to vpn to use [a Binance functionality] . . . it’s a biz decision.”

And in an April 2019 conversation between Binance’s Chief Financial Officer and Lim regarding Zhao’s reaction to controls that purported to block customers attempting to access Binance from U.S.-based IP addresses, Lim said: “We are actually pretty explicit about [encouraged VPN use] already – even got a fking guide. Hence CZ is ok with blocking even usa.”

119. Binance senior management, including Lim, have used other workarounds to indirectly instruct Binance customers to evade Binance’s IP address-based compliance controls.

For example, in a July 8, 2019, conversation regarding customers that ought to have been “restricted” from accessing the Binance platform, Lim explained to a subordinate: “they can use vpn but we are not supposed to tell them that . . . it cannot come from us . . . but we can always inform our friends/third parties to post (not under the umbrella of Binance) hahah.”

120. Lim continued his crafty efforts to assist Binance customers in circumventing Binance’s compliance controls, as documented in a February 12, 2020 chat:

Employee: hi Samuel, we are helping [an intermediary] to integrate with us to introduce new users and trade liquidity, but find most of their users are from US. Now Binance.com block US IP from registration. May I ask whether it is still a hard requirement nowadays?

Lim: Yes, it still is. Because if US users get on .com we become subjected to the following US regulators, fincen ofac and SEC. But as best we can we try to ask our users to use VPN or ask them to provide (if there are an entity) non-US documents. On the surface we cannot be seen to have US users but in reality we should get them through other creative means.

121. Binance’s use of creative workarounds to its compliance controls is further documented in a July 17, 2020 chat in which Lim clarified to a colleague:

No we cannot change their status to non us if they are us

Thats fraud

But we can encourage them to be a non kyc account

Or use a vpn

. . .

Yea can bypass [limitations on non-KYC accounts, such as withdrawal limits], give a little hand that you guys can work something out

please be clear we only do this for our biggest traders/VIPs . . .

this is SPECIAL treatment

122. Lim also used Binance.US as a laboratory to identify important U.S. customers that could be prioritized for expedited on-boarding to the Binance platform. In a July 15, 2020 chat, Lim explained to a Binance employee that he should first ask a prospective customer “to onboard with US, then if their volume is really very big we will push hard on .com to accept it on an exceptional basis . . . CZ will definitely agree to this lol.”

Lim continued: “but they need to really be doing sick ass volumes . . . we always have a way for whales.” Lim reiterated this procedure in a July 27, 2020 chat, explaining that “getting on .com” would be “an issue” for a prospective customer with “US beneficial owners” but that the prospective customer could “of course get on Binance US and then if the volumes are good, we can find a way to backdoor them to .com.”