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(Kitco News) - Binance, the largest cryptocurrency exchange in the world, requested a dismissal of the lawsuit filed by the Commodity Futures Trading Commission (CFTC), saying the regulator lacks jurisdiction.
According to the Thursday court filing, attorneys for Binance and its CEO Changpeng “CZ” Zhao said the CFTC exceeded its regulatory authority and engaged in regulatory overreach when it filed the lawsuit in March alleging the exchange broke U.S. trading and derivatives rules.
The lawsuit included allegations that the company offered unregistered derivatives products in the U.S. – including cryptocurrency trading services, futures and options products – lacked a reliable Know Your Customer (KYC) or Anti-Money Laundering (AML) program and failed to register as a futures commissions merchant, designated contract market or swap execution facility.
“In this case, the CFTC seeks to regulate foreign individuals and corporations that reside and operate outside the United States – outstripping the limits of its statutory authority and treading on deep-rooted principles of comity with foreign sovereigns,” the filing states. “In addition to stretching the territorial reach of its jurisdiction, the CFTC further resorts to a hodge-podge of legal theories that rely on competing and inconsistent registration categories, assert a novel and unsound claim under a regulatory provision that has never been used before, and rely on allegations that are irrelevant under the agency’s own guidance.”
Based on these statements, Binance said “The Court should reject the CFTC’s attempt at regulation by enforcement and return the agency to shore.”
The filing goes on to detail how the first six charges presented by the CFTC do not pertain to the foreign conduct addressed in the case, and said certain charges do not meet the required legal standards.
As for a seventh charge that accused Binance of evading the Commodity Exchange Act (CEA), the filing argued that this charge should be dismissed as the agency failed to satisfy the requirements for such an accusation.
“The CFTC seeks to regulate the overseas activities of foreign corporations and individuals based on conclusory allegations that fail to establish jurisdiction over the defendants, fail to establish that the CFTC can enforce the provisions cited in the complaint extraterritorially, and fail to plead essential elements of its claims,” Binance argued. “The Court should dismiss the complaint in its entirety.”
Binance also said the CFTC lacks regulatory authority over spot trading domestically and internationally, and questions whether Binance·com should be subject to specific registration and regulatory compliance provisions in the CEA and CFTC regulations based on its introduction of additional products after 2019, and its previous restriction on U.S. users.
“The CFTC’s failure to include allegations sufficient to establish personal jurisdiction requires dismissal,” the filing said.
Binance has come under intense scrutiny by global regulators in 2023 following the collapse of FTX in November, which put a spotlight on the damage large, unregulated exchanges can have on the cryptocurrency ecosystem when they run into solvency issues.
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On June 5, the SEC filed 13 charges against Binance and CZ for a variety of violations, including operating an illegal platform in the U.S. and misusing customer funds.
On June 16, Binance announced that it would be leaving the Dutch market.
“Binance has been in a comprehensive registration application process as a virtual asset service provider (VASP) with the Dutch regulator,” the announcement said. “Although we explored many alternative avenues to service Dutch residents in compliance with Dutch regulations, unfortunately this has not resulted in a VASP registration in the Netherlands at this time. Binance will continue striving to obtain authorizations to provide our products and services to users in the Netherlands.”
The exchange said that following its announcement, no new users residing in the Netherlands will be able to register, and existing Dutch resident users will only be able to withdraw assets from the platform.
That same day, French authorities revealed they had been investigating Binance since February 2022 for failing to fulfill its obligations when it comes to conducting proper Know-Your-Customer (KYC) checks for users of its French unit, which is a key component in helping to prevent money laundering.
As a requirement to operate in the region, Binance is mandated to obtain an operating license, which it failed to do, leading regulators to charge the platform with illegally offering its services to French customers.
And on July 4, the Australian Securities and Investments Commission (ASIC) conducted searches at multiple Binance Australia locations related to the regulator's ongoing probe of Binance’s local derivatives business, which was shut down in April after the ASIC canceled the exchange’s derivatives license.
