The world’s biggest cryptocurrency exchange has been threatened with a US trading ban after allegedly hosting accounts linked to Hamas and Russian criminals.
Binance is being sued by regulators over claims that it sought to avoid regulations meant to prevent money laundering, while enabling high-risk trades by Americans.
The price of Bitcoin dropped 4pc after the lawsuit was announced amid fears that the crackdown could severely disrupt trading.
In a civil complaint, the Commodity Future Trading Commission (CFTC) accused Binance and its founder, Changpeng “CZ” Zhao, of encouraging Americans to evade compliance controls and break market rules, according to a Chicago court filing.
It claimed that employees of the business – an offshore cryptocurrency behemoth that facilitates trillions of pounds in digital asset trades – joked about terrorists using the platform in a sign of how lax the rules were.
The CFTC alleged that Samuel Lim, Binance’s chief compliance officer, said in February 2019 after receiving information regarding transactions by the Palestinian group Hamas that terrorists usually send “small sums” as “large sums constitute money laundering”.
Mr Lim’s colleague replied: “Can barely buy an AK47 with 600 bucks.”
In another online chat about Russian customers of Binance, Mr Lim allegedly said: “Like come on. They are here for crime.”
Binance’s money laundering officer replied: “We see the bad, but we close two eyes.”
On another occasion, Mr Lim is said to have decided that a trader who was “very closely associated with illicit activity” and responsible for $5m (£4.1m) of questionable transactions should be told to close their account and open a clean new one.
The intervention is likely to cast a fresh chill over crypto markets following the collapse of Binance’s biggest rival, FTX, whose founder Sam Bankman-Fried is facing trial in the US on fraud charges.
The CFTC said that Binance was guilty of seven regulatory breaches by offering the trading of Bitcoin and Ethereum derivatives without obeying US rules or properly registering its operations.
It claimed that the company had fallen short on its compliance controls, such as requirements to effectively vet potential customers and ban suspicious accounts, while seeking to boost its profits.
The allegations will pile further pressure on the cryptocurrency titan, which is facing multiple US investigations, including a criminal case brought by the Justice Department.
In a letter to Mr Zhao earlier this month, US senators accused Binance of facilitating a hotbed of illegal financial behaviour and enabling up to $10bn in payments to criminals or in avoidance of sanctions.
The cryptocurrency company’s auditor resigned in December. In the UK it has faced scrutiny from the Financial Conduct Authority, which in 2021 blocked it from launching a British subsidiary.
British customers can still interact with Binance through its offshore exchange.
While Binance operates a separate North American operation, Binance.US, the CFTC complaint alleged it subtly directed its most valuable customers to instead trade with its main international division, which had fewer controls in place.
In the legal filings, the CFTC claimed Binance had relied on a “maze of corporate entities” to hide its true ownership, while Mr Zhao had repeatedly failed to confirm where Binance was truly headquartered. The regulator said: “Zhao answers to no one but himself.”
The CFTC claimed Binance had grown its US customer numbers, with 18pc of traders based in America even after it officially started restricting US access.
In one case, when it was required to do a more detailed audit by a business partner, Binance allegedly hired a firm that would do a “half assed” job, according to messages from one executive.
The regulator said it would seek permanent trading and registration bans against Binance in the US, and an injunction blocking Binance and its executives from controlling or directing the trading of digital assets.
Officials quoted internal Binance emails and encrypted messages from the app Signal, which it claimed showed the company instructing US users how to access the site without alerting authorities, such as through a virtual private network.
Mr Lim allegedly said in one chat the company’s customer support teams appeared to be “teaching [people] how to circumvent sanctions”.
According to the charges, Mr Lim also said Binance would engineer ways for VIP customers to be fast-tracked around any potential compliance roadblocks. He said customers doing “sick ass volumes” could get special treatment, adding: “We always have a way for whales”.
Rostin Behnam, chairman of the CFTC, said: “This should be a warning to anyone in the digital asset world.”
Gretchen Lowe, chief counsel at the regulator, said: “Binance’s compliance efforts have been a sham and Binance deliberately chose – over and over – to place profits over following the law.”
A Binance spokesman said: “The complaint filed by the CFTC is unexpected and disappointing as we have been working collaboratively with the CFTC for more than two years. Nevertheless, we intend to continue to collaborate with regulators in the US and around the world.”