For all the crypto currency fans out there who have been saying, “What could possibly go wrong?” in a financial industry no one can explain, and, as if FTX was not enough, we have this:
Samuel Lin, the compliance chief for Binance Holdings Ltd. from 2018-2022, has been sued by the U.S. Commodities Futures Trading Commission (CFTC) with willfully aiding and abetting his company in evading U.S. laws. Interpretation: the compliance officer set up a system for evasion of his own compliance controls.
And, Binance has refused to provide the CFTC with Mr. Lim’s residential address in Singapore so that he can be served with an investigative subpoena.
The complaint alleges that Binance, despite its denials, has long been soliciting customers in the United States. Binance was soliciting U.S. customers through a complex structure to evade U.S. laws and regulations. The company used personnel and vendors in the United States and actively cultivated VIP customers in the United States. However, the complaint also alleges that once customers were hooked, Mr. Lim helped them evade compliance controls. Mr. Lim told customers to use VPNs to avoid Binance’s internet protocol address-based controls. Off-shore companies were the recommended tool for evading Binance’s anti-money laundering controls.
The complaint in the suit provides lesson in the following axioms:
(a) If you are doing stuff that just might cross a line here and there, don’t brag about it in e-mail; and
(2) “Criminals are Stupid” — the title of the Barometer’s criminal law professor’s book about his experiences as a prosecutor.
Some gems from the complaint in Commodities Futures Trading Commission v.Changpeng Zhao, Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited, and Samuel Lim https://www.cftc.gov/PressRoom/PressReleases/8682-2
Binance has been aware that its compliance controls have been ineffective. As Lim—at the time Binance’s CCO—recognized in an October 2020 chat with other Binance compliance personnel, Binance’s compliance environment has amounted to “email sending and no action . . . for media pickup . . . I guess you can say its ‘fo sho.’”
As part of an audit for a customer, the Binance employee who held the title of Money Laundering Reporting Officer (“MLRO”) lamented that she “need[ed] to write a fake annual MLRO report to Binance board of directors wtf.” Lim, who was aware that Binance did not have a board of directors, nevertheless assured her, “yea it’s fine I can get mgmt. to sign” off on the fake report. Around the same time as the referenced “half assed” compliance audit.”
In November 2020 the MLRO exclaimed to Lim in a chat, “I HAZ NO CONFIDENCE IN OUR GEOFENCING [screening out customers from certain countries, e.g., the U.S.].
in February 2019, after receiving information “regarding HAMAS transactions” on Binance, Lim explained to a colleague that terrorists usually send “small sums” as “large sums constitute money laundering.” Lim’s colleague replied: “can barely buy an AK47 with 600 bucks.”
And with regard to certain Binance customers, including customers from Russia, Lim acknowledged in a February 2020 chat: “Like come on. They are here for crime.” Binance’s MLRO agreed that “we see the bad, but we close 2 eyes.”
Yes, indeed, it was a web of crime and Binance officers, such as they were, had their eyes wide shut. Alleged crime, and alleged eyes shut that is.