Reports have emerged suggesting that the U.S. Department of Justice (DOJ) is deliberating the possibility of bringing forth fraud charges against Binance, the world’s largest cryptocurrency exchange. However, there are apprehensions about the potential impact such a move might have on the exchange’s customers.
Sources familiar with the matter, as cited in a report by Semafor, reveal that the DOJ is contemplating indicting Binance on fraud charges. However, prosecutors are treading cautiously due to the fear that such an action could trigger a surge of withdrawals from the exchange, mirroring the situation faced by FTX during its financial turmoil that eventually led to its declaration of bankruptcy.
The prospect of a rush on Binance could result in losses for ordinary investors and potentially induce a state of panic across the cryptocurrency markets, insiders have cautioned.
In lieu of pursuing fraud charges, prosecutors are actively considering alternative avenues. These include the imposition of fines, deferred prosecution agreements, or non-prosecution agreements. This approach seeks to strike a balance by holding Binance accountable for alleged unlawful activities while simultaneously minimizing potential harm to consumers.
Binance is already contending with multiple legal challenges on various fronts. Notably, the Securities and Exchange Commission (SEC) filed a lawsuit on June 5, leveling 13 charges against the exchange and its CEO, Changpeng Zhao (CZ). The SEC accuses Binance and its CEO of running an illicit platform within the United States and misusing customer funds.
The Commodity Futures Trading Commission (CFTC) also initiated legal action against Binance in March, alleging that the exchange provided unregistered derivatives products in the U.S., lacked robust Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, and operated without proper registrations as a futures commissions merchant, designated contract market, or swap execution facility.
In response, Binance submitted a request for the dismissal of the CFTC lawsuit, asserting that the regulatory body overstepped its authority by alleging violations of U.S. trading and derivatives regulations.
The regulatory scrutiny extends beyond U.S. borders. Binance announced on June 16 that it would exit the Dutch market due to complications in obtaining a virtual asset service provider (VASP) registration from Dutch regulators. Consequently, the exchange will halt new user registrations from the Netherlands, allowing only withdrawals for existing Dutch resident users.
Additionally, French authorities disclosed their investigation into Binance’s compliance with Know-Your-Customer (KYC) requirements for its French unit, citing concerns about potential money laundering. Operating without an essential license, Binance was charged with unlawfully providing services to French customers.
Furthermore, Australian regulators conducted searches at multiple Binance Australia locations on July 4 as part of their ongoing probe into Binance’s local derivatives business. This branch had its derivatives license revoked by the Australian Securities and Investments Commission (ASIC) in April, leading to its closure.