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Message history is used against ex-Binance CCO in CFTC case

Chief compliance officers have become a prized commodity in the "Wild West" of bitcoin.

“The Internet Computer can now serve as a Layer 2 for Bitcoin where smart contracts on the Internet Computer can hold, send and receive Bitcoin natively, without the need for blockchain bridges or other third parties. This provides a trustless foundation for various DeFi and Web3 applications seeking to code Bitcoin,” IC said.

The world's most popular cryptocurrency can now be used for DeFi activities such as yield farming, loans, and payments, among others. This is possible thanks to the Internet Computer's upgraded Chain-key cryptography. Direct integration with Bitcoin eliminates the need for bridging and wrapped Bitcoin, a technology commonly employed to ease interaction between different blockchains that is error-prone and frequently hacked.

“Blockchains are like walled gardens, incapable of interaction between one another. When this comes to Bitcoin, applications, such as DeFi applications, that could benefit most from interacting with the world’s largest cryptocurrency do not have the ability to do so. The Internet Computer’s integration with Bitcoin is a true game-changer for the industry, finally bringing smart contract functionality to Bitcoin and enabling a whole new landscape of DeFi and dapp (decentralised applications) development never before possible using BTC. We are incredibly excited to see how developers interact with this revolutionary functionality,” Manu Drijvers, Director of Engineering at the DFINITY Foundation, said.

Crypto enterprises facing increased regulatory scrutiny in the previous year can rely on the legitimacy provided by a well-established and empowered CCO. Investigators are looking at these companies' compliance policies and procedures to ensure they meet all necessary criteria. This could imply removing the target from one's back.

Nevertheless, the inverse is also true: a crypto corporation with a CCO who is found to be not taking their function seriously may face increased regulatory pressure. After charges levelled by the Commodities Futures Trading Commission (CFTC) last week, such a situation is currently playing out at Binance, the world's largest crypto exchange.

From July 2019 to the present, the CFTC accused Cayman Islands-based Binance and its creator of operating an illegal digital asset derivatives exchange for US-based customers. The CFTC disagrees with Binance's claim that it prevents all US-based customers from accessing its platform.

Charges of aiding and abetting the company's alleged misbehaviour were also included in the agency's complaint against Binance's former CCO, Samuel Lim.

Lim “promot[ed] the use of ‘creative means’ to assist customers in circumventing Binance’s compliance controls,” according to a CFTC press release. He indirectly described the company putting commercial success over compliance with U.S. law as a “‘biz decision,’” the agency said.

The CFTC supported its accusations with internal messages from Lim, including the following examples:

  • Regarding U.S. customers using virtual private networks (VPNs) to access the platform: “‘[T]hey can use vpn but we are not supposed to tell them that … it cannot come from us … but we can always inform our friends/third parties to post (not under the umbrella of Binance) hahah.’”

  • Regarding known loopholes in know your customer (KYC) procedures: “‘If Binance forces mandatory KYC, then [competing digital asset exchanges] will be VERY VERY happy.’”

  • Regarding customers alleged to use the platform for facilitating illegal activities: “‘Like come on. They are here for crime.’”

  • Regarding whether a customer believed to be engaging in criminal activity should be offboarded: “‘He can come back with a new account. But this current one has to go, it’s tainted.’”

  • Regarding the firm’s compliance culture: “‘Email sending and no action.’”

The CFTC further alleged Lim was aware of the applicability of U.S. regulatory and legal requirements on Binance as far back as 2018, saying it was a “‘pain in the [butt] but its [sic] my duty’” to remind the platform’s founder of sanctions controls and that there was “‘no … way in hell I am signing off as the cco’” for meeting requirements established by the Treasury Department’s Office of Foreign Assets Control (OFAC).

It's a red indicator if your CCO describes their job as a "pain in the buttocks." When they openly advocate breaching the law, it tarnishes the credibility of your entire organisation.

According to the CFTC, Lim, who is believed to be headquartered in Singapore, joined Binance as its first CCO in April 2018 and will remain in the job until January 2022. He was placed on leave in or around May 2022, although he is still employed by the corporation, according to the agency.

Binance has made several measures in recent months to strengthen its compliance procedures. In September, it hired Steven Christie, former head of compliance at competitor Kraken, as senior vice president of compliance, and in February, it chose Noah Perlman, former Gemini chief operating officer, as global chief compliance officer. The firm claims to have 750 core and supporting compliance workers.

Nevertheless, Lim's alleged actions as the company's first CCO have called all of that into question. His predecessors will face an uphill struggle in eliminating the company's reputation as a "mere façade of compliance," as CFTC Commissioner Kristin Johnson phrased it.

What a pain in the buttocks.


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