Public Statements & Remarks

Statement of Commissioner Kristin N. Johnson in Support of the CFTC Complaint Alleging Binance, Affiliated Entities, and Senior Management Violated the Commodity Exchange Act and Evaded U.S. Regulation

March 27, 2023

Today, the Commodity Futures Trading Commission (Commission or CFTC) filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois against Binance Holdings Limited, Binance Holdings (“IE”) Limited, Binance (“Services”) Holdings Limited (collectively, “Binance”), and Binance’s CEO, Changpeng Zhao (“Zhao”or “CZ”), and former Chief Compliance Officer, Samuel Lim (“Lim”).  As the CFTC complaint alleges, Zhao with the assistance of Chief Compliance Officer Lim, orchestrated a strategy directing the Binance enterprise to engage in numerous violations of the Commodity Exchange Act (CEA) and the CFTC regulations, ultimately operating the enterprise through a complex web of firms with the goal of using this operational infrastructure to shield Binance from complying with existing regulations in any of the jurisdictions where the firm operates.

For almost a century, courts have interpreted our enabling statute to grant the CFTC authority to review the substance of a transaction or an enterprise’s structure to ensure that the underlying goals of preventing fraud and market manipulation as well as ensuring compliance with our regulations apply in the instances that Congress intended and the law permits. Legislative history and judicial precedent have long established that regulatory enforcement should not be constrained by “form over substance” and make plain the application of the CEA and CFTC regulations to activity when U.S. persons are solicited and agree to participate.  

Actors who engage in conduct or transactions that fall within the Commission’s remit should expect to comply with CFTC regulations or face the consequences for failing to comply. The Commission will seek to prevent actors from obscuring regulated activity beneath a shroud created by a complex web of corporate entities. Manufacturing a mere façade of compliance will not shield those engaged in activities within our remit from surveillance, investigations, and potential legal liability for failing to comply with regulations.

By many measures – trading volume, total number of customers, diversity of product offerings, number of operating units, diversity of jurisdictions offering access to the business’s platforms – Binance is among the largest digital asset enterprises in the world. Zhao controls and directs Binance’s coalition of businesses which purportedly are not headquartered in any jurisdiction and therefore, by extension of this logic, subject to the jurisdiction of none.[1]  According to Zhao, Binance is headquartered where he as an individual is physically located at any point in time, reflecting a deliberate attempt to limit jurisdiction and evade the application of regulation.[2]  Such an approach is inconsistent with the CEA, CFTC regulations, and the regulations of many other jurisdictions around the world.[3] 

Evidence suggests that Zhao and former Binance CCO Lim were aware that Binance’s activities in the United States were subject to registration and regulatory requirements under U.S. law and that they deliberately disregarded these requirements. While Binance’s compliance program was ineffective in complying with the law, evidence suggests that it was quite effective at directing U.S. customers on how best to evade Binance’s access controls.[4]  Adopting similar approaches, firms have attempted to limit the ability of regulators to identify bad actors and hold them accountable.[5]  It is for this very reason that Congress empowered the Commission with broad anti-fraud and enforcement authority to reach those whose actions threaten fraud or fail to comply with regulations, or present systemic risks within our markets.

The complaint alleges that Binance engaged in off-exchange commodity futures transactions in violation of Section 4(a) and 4(b) of the CEA.[6]  In addition, the complaint alleges that Binance enabled off-exchange transactions in commodity options, in violation of Section 4c(b) of the CEA.[7]  In addition, Binance solicited and accepted orders for commodity futures, options, swaps, and retail commodity transactions without being registered as a futures commission merchant (FCM), in violation of Section 4d of the CEA.[8]  In other words, Binance solicited and facilitated transactions from retail individual market participants, a class of investors that includes the most vulnerable investors in our markets, while evading the protections that regulatory oversight provides. 

Moreover, Binance operated a facility for the trading and processing of swaps without being registered as a swap execution facility (SEF) or designated contract market (DCM), in violation of Section 5h(a)(1) of the CEA.[9]

In light of the egregiousness of this conduct and the exceptional effort to orchestrate a conglomerate beyond the reach of regulation, there is an ample basis for concluding that these efforts violate CFTC Regulation 1.6, which the Commission implemented in connection with regulations introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). This regulation authorizes the Commission to introduce and enforce rules to prevent market participants from engaging in regulatory evasion.[10] 

Specifically, Regulation 1.6(a) states that:

It shall be unlawful to conduct activities outside the United States, including entering into agreements, contracts, and transactions and structuring entities, to willfully evade or attempt to evade any provision [of the CEA added by the Dodd-Frank Act] . . . or the rules, regulations, and orders of the Commission promulgated thereunder.”[11] 

Following the 2008 financial crisis, Congress explicitly included this provision in order “to fully prevent those who seek to willfully evade the regulatory requirements established by Congress . . . relating to swaps from enjoying any benefits from their efforts to evade.”[12] 

Increasingly, actors signal their express intent to engage in regulatory evasion by employing tactics designed to permit an end-run around existing regulation.[13]  Such efforts thwart effective market surveillance and undermine accountability as well as market integrity by limiting our ability to ensure that market participants creating the same risks are subject to the same rules.  Congress empowered the Commission with broad anti-fraud and enforcement authority, in part, at least, for this reason. Without such authority, the Commission would be unable to reach those whose actions threaten to perpetuate fraud or present systemic risks within our markets. 

Fundamental principles of customer protection and market integrity are embedded in the regulatory structure created by the CEA and CFTC Regulations.  By evading application of the statute and regulations, Binance creates significant risk and harm to U.S. customers and global markets.  Binance’s unregulated business operates to amplify risk without any regulatory oversight. 

I applaud the work of the Division of Enforcement staff who have pursued this investigation and are bringing this case, including:  Candy Haan, Jody Platt, Joseph Patrick, Matthew Edelstein, Elizabeth Pendleton, Scott Williamson, and Robert Howell.  I look forward to vindication of the Commission’s allegations before the Court, and hope and expect that other participants in the digital asset markets will take notice and register with the CFTC as appropriate.  

[1] Compl. at ¶¶ 1, 5, Commodity Futures Trading Commission v. Zhao et. al, 1:23-cv-01887 (N.D.Ill. Mar. 27, 2023), available at 

[2] Id. According to the CFTC Complaint and publicly available information, Zhao has explained this strategy. In an internal meeting in June of 2019, the CFTC complaint notes that Zhao stated that “Binance conducts its operations through various entities incorporated in numerous jurisdictions to ‘keep countries clean [of violations of law]’ by ‘not landing .com anywhere.  This is the main reason .com does not land anywhere.’”

[3] Id. ¶ 5.

[4] Id. ¶ 3.

[5] See Commodities Futures Trading Commission v. HDR Global Trading et. al, 1:20-cv-08132-LTS-JLC (S.D.N.Y, May 2, 2022).

[6] Section 4(a) of the Act, 7 U.S.C. § 6(a), in relevant part, makes it unlawful, subject to certain exemptions not relevant here,13 for any person to offer to enter into, execute, confirm the execution of, or conduct any office or business anywhere in the United States for the purpose of soliciting, accepting any order for, or otherwise dealing in any transaction in, or in connection with, a contract for the purchase or sale of a commodity for future delivery (other than a contract which is made on or subject to the rules of a board of trade, exchange, or market located outside the United States, its territories or possessions) unless the transaction is conducted on or subject to the rules of a board of trade that has been designated or registered by the Commission as a contract market.14 Scienter is not an element of a violation of Section 4(a) of the Act. See CFTC v. Noble Metals Int’l, Inc., 67 F.3d 766, 773-74 (9th Cir. 1995)

Pursuant to its authority under Section 4(b) of the Act, 7 U.S.C. § 6(b), the Commission promulgated rules governing foreign boards of trade in Part 48 of its Regulations, 17 C.F.R. pt. 48 (2022). Regulation 48.2, 17 C.F.R. § 48.2, defines “foreign board of trade” as “any board of trade, exchange or market located outside the United States, its territories or possessions, whether incorporated or unincorporated.” Regulation 48.3, 17 C.F.R. § 48.3, titled “Registration required,” provides in pertinent part that “it shall be unlawful for a foreign board of trade to permit direct access to its electronic trading and order matching system unless and until the Commission has issued a valid and current Order of Registration to the foreign board of trade.

[7] Section 4c(b) of the Act provides, in pertinent part, that:

No person shall offer to enter into, enter into or confirm the execution of, any transaction involving any commodity regulated under this Act which is of the character of, or is commonly known to the trade as, an “option”, “privilege”, “indemnity”, “bid”, “offer”, “put”, “call”, “advance guaranty”, or “decline guaranty”, contrary to any rule, regulation or order of the Commission prohibiting any such transaction or allowing any such transaction under such terms and conditions as the Commission shall prescribe.

Regulation 32.2 provides, in turn, that it shall be unlawful for any person to “offer to enter into, enter into, confirm the execution of, maintain a position in, or otherwise conduct activity related to any transaction in interstate commerce that is a commodity option transaction unless: (a) [such] transaction is conducted in compliance with and subject to the provisions of the Act, including any Commission rule, regulation, or order thereunder, otherwise applicable to any other swap, or (b) [s]uch transaction is conducted pursuant to § 32.3,” which deals with “trade options.”

[8] Section 4d(a)(l) of the Act, 7 U.S.C. § 6d(a)(l), makes it unlawful for any person to act as an FCM unless registered as such with the Commission. An FCM is an individual, association, partnership, corporation, or trust that (i) is engaged in soliciting or in accepting orders for regulated transactions including futures, swaps, commodity options, or retail commodity transactions, or (ii) acts as a counterparty to retail commodity transactions; and which, in connection with these activities, “accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom.” Section 1a(28)(A) of the Act, 7 U.S.C. § 1a(28)(A).

[9] Section 5h(a)(1) of the Act, 7 U.S.C. § 7b-3, and Regulation 37.3(a)(1), 17 C.F.R. § 37.3(a)(1) (2022) establishes that it is impermissible for a person to operate a facility for the trading or processing of swaps unless the facility is registered as a SEF or DCM with the CFTC. A swap execution facility is defined in Section 1a(50) of the Act, 7 U.S.C. § 1a(50) as “a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility, that:

(A) facilities the execution of swaps between persons; and (B) is not a designated contract market.”

[10] See 17 C.F.R. § 1.6; see also Pub. L. No. 111–203, § 722(d), 124 Stat. 1376, 1673 (codified at 7 U.S.C. (2)(i)(2)) (authorizing adoption of an anti-evasion rule); Compl. ¶¶ 8, 231–36 (bringing claim for conducting activities outside the United States to willfully evade relevant provisions of the CEA, in violation of Regulation 1.6).

[11] 17 C.F.R. § 1.6(a). 

[12] Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 Fed. Reg. 48,208, 48,299 (Aug. 12, 2012) (final rule adopting Regulation 1.6). 

[13] See Compl. at ¶ 5 (“Zhao explained this strategy during a June 2019 internal meeting, stating that Binance conducts its operations through various entities incorporated in numerous jurisdictions to ‘keep countries clean [of violations of law]’ by ‘not landing .com anywhere.  This is the main reason .com does not land anywhere.’”)