Two companies registered in Ireland are at the centre of a landmark lawsuit against Binance in the US where regulators allege that the crypto asset exchange routinely breached trading rules, destroyed documents and failed to implement effective anti-money laundering controls.
The allegations against the group and its founder and chief executive, Changpeng Zhao – known colloquially as CZ – are detailed in federal court documents filed in Chicago on Monday by the Commodities Futures Trading Commission (CFTC).
The two Irish entities, Binance Holdings IE and Binance Services Holdings, are registered at the Dublin 4 offices of law firm Mason Hayes & Curran, which is acting as corporate secretary to the companies, according to Companies Registration Office documents.
Both entities are named in the lawsuit as part of “an opaque web of corporate entities” that constitutes Binance, all of which are “ultimately controlled” by Mr Zhao.
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Binance Holdings is described as a holding entity, “that has directly or indirectly owned at least 24 corporate entities that have acted as Binance’s digital asset and virtual asset service providers in a variety of jurisdictions and held Binance’s non-US regulatory licenses”.
Binance Services Holdings, meanwhile, is described as having “directly or indirectly owned at least 43 different corporate entities, including companies that conduct technology and operations services for Binance, hold the intellectual property related to Binance’s matching engines and financial products, and enter into contracts with vendors” among other functions.
It is alleged in the documents that neither company had registered with CFTC despite being required to do so. Chiefly, the CFTC’s complaints centre around the allegation that the group – which also has companies registered in Malta, the Cayman Islands, Lithuania and the US – allowed American customers to trade in crypto derivatives without registering with federal authorities.
The commission also alleges that Mr Zhao and other senior managers failed to supervise the group’s activities and that Binance “purposefully obscures the identities and locations of the entities” that operate its trading platform.
It is also alleged that Binance “intentionally [destroyed] documents related to illegal conduct” and that Binance employees used messaging apps like Signal to communicate with each other and “VIP” customers. The regulator claims that Binance has provided its VIP customers the benefit of “prompt notification of any law enforcement inquiry concerning their account”, using apps that allow them to auto-delete messages “to cover their tracks after communicating about inculpatory matters”.
A spokesman for Binance declined to answer questions put to him about the company’s operations in Ireland where it has registered at least seven separate entities in recent years.
Initially headquartered in China before moving abroad in advance of a regulatory crackdown, Binance does not disclose the location of its main offices. “Instead,” the CFTC claims, Mr Zhao “has stated that Binance’s headquarters is wherever he is located at any point in time, reflecting a deliberate approach to attempt to avoid regulation.”
Mr Zhao hinted in a 2021 interview with Reuters that Ireland was being considered as a location for its regional base of operations. However, Binance eventually selected Paris as its European hub last summer.
The Irish-registered companies – the directors of which are listed as Mr Zhao and Dublin-based former State Street executive Karl Long, who joined the crypto exchange last summer as executive director – are not currently regulated by the Central Bank of Ireland and Binance declined to provide any detail about how many people it employs in Ireland.
The 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. The best path forward is to protect our users and to collaborate with regulators to develop a clear, thoughtful regulatory regime.”
The lawsuit represents the most significant enforcement action taken by US regulators against the world’s largest crypto asset exchange since it burst on to the scene in mason in 2017.
