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(Kitco News) - The U.S. Department of Justice (DOJ) is reportedly considering filing fraud charges against Binance, the largest cryptocurrency exchange in the world, but has concerns about the effect the move would have on customers.
According to a report from Semafor citing people familiar with the matter, the DOJ wants to indict Binance for fraud, but prosecutors are worried that doing so could cause a run on the exchange similar to what happened with FTX when it ran into financial difficulties that ultimately resulted in filing for bankruptcy.
A run on Binance could cause regular investors to lose their money and potentially spur a panic in the crypto markets, sources said.
In lieu of fraud charges, prosecutors are also considering other options, such as fines and deferred or non-prosecution agreements, they said. This would be a compromise that holds Binance responsible for their alleged criminal behavior while also mitigating any potential harm to consumers.
Binance is already facing legal challenges on multiple fronts, including a lawsuit filed by the Securities and Exchange Commission (SEC) on June 5 that leveled 13 charges against the exchange and its CEO Changpeng Zhao (CZ). The regulator charged Binance and its CEO with operating an illegal platform in the U.S. and for the misuse of customer funds.
The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance in March that 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.
Binance submitted a request for dismissal of the CFTC lawsuit on Friday, saying the CFTC exceeded its regulatory authority and engaged in regulatory overreach when it filed the lawsuit alleging the exchange broke U.S. trading and derivatives rules.
And it's not just U.S. authorities that have taken enforcement actions against the exchange. 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.
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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.
