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If you want a serious analysis of why this is actually happening, and what's actually important in this document, read Matt Levine: https://archive.ph/NF8yN ht

by darawk 4y ago

If you want a serious analysis of why this is actually happening, and what's actually important in this document, read Matt Levine: https://archive.ph/NF8yN https://archive.ph/NF8yN > The CFTC’s complaint here gestures at traditional regulatory concerns like retail customer protection and cracking down on money laundering. But it is mostly about cutting off a big international crypto exchange from big sophisticated proprietary market-making firms in the US. I think the market expectation here was that if you are a big trading firm trading with your own money and your own algorithms, and you have enough lawyers and offshore shell entities, you can trade on any crypto exchange in the world from the comfort of your Chicago office: There might be a technical argument that it’s not allowed, but your lawyers are aggressive and sophisticated enough to get around that technicality, and anyway why would the CFTC care? But the CFTC does care, perhaps not because it wants to protect big US high-frequency trading firms from the risks of trading on Binance, but because Binance is the biggest crypto exchange and this is a lever to crack down it. And the CFTC also has lawyers who are sophisticated and not deterred by technicalities — here, for instance, the technicality that Trading Firm B’s account actually belonged to a Jersey company. This is the actual substance of the complaint. The "terrorist financing" and retail stuff is a smokescreen to seem worthy of the CFTC's attention. Nobody is being protected here. No significant terrorist financing is being stopped.

deleted 4y ago
[deleted]
pavlov 4y ago
> “No significant terrorist financing is being stopped.” How do you know? When Binance’s own Chief Compliance Officer was primarily in the business of helping customers avoid compliance, it doesn’t seem like they would know very much about what ultimately went down on the platform. The complaint quotes an internal email that read: “We close our eyes.” Binance was a major counterparty of Bitzlato, a crypto exchange that existed primarily for Russian money laundering: https://www.reuters.com/business/finance/binance-moved-346-mln-seized-crypto-exchange-bitzlato-data-show-2023-01-24/ https://www.reuters.com/business/finance/binance-moved-346-m... That’s probably the tip of the iceberg. The CFTC’s complaint naturally focuses on the stuff that’s easiest for them to prove. Getting evidence from hedge funds based in Chicago is obviously a lot easier for a civil agency that doesn’t have enormous resources.
- darawk 4y ago
  > How do you know? When Binance’s own Chief Compliance Officer was primarily in the business of helping customers avoid compliance, it doesn’t seem like they would know very much about what ultimately went down on the platform. The complaint quotes an internal email that read: “We close our eyes.” I don't, but obviously the CFTC doesn't either, otherwise they'd have spelled it out. So, considering the party investigating is ignorant of any significant terrorist financing activity, I see no reason to think otherwise. > Binance was a major counterparty of Bitzlato, a crypto exchange that existed primarily for Russian money laundering: https://www.reuters.com/business/finance/binance-moved-346-m https://www.reuters.com/business/finance/binance-moved-346-m... There is nothing in the complaint stating that Binance knowingly facilitated any criminal activity of Bitzlato, afaik. The fact that criminal actors had an account at a financial institution is not prima facie evidence of any crime on the part of the financial institution, especially not for one that isn't registered in the US. Even for US registered entities, plenty of criminals have bank accounts. It's the bank's job to perform a certain level of diligence to stop them, not an infinite level of diligence. If the CFTC believed Binancing knowing facilitated criminal activity on the part of Bitzlato, that'd be in the complaint. It's not, therefore, they don't. Or at the very least, they have insufficient evidence for it. So any suggestion that significant terrorist financing is being stopped here is pure speculation, unsupported by anything in the document itself.
  - dragonwriter 4y ago
    > I don’t, but obviously the CFTC doesn’t either, otherwise they’d have spelled it out. Or, they do know and more detail wasn’t relevant at the complaint stage of the civil case, whereas it might be to the actual trial and to the parallel criminal referral that it has been reported that DoJ is investigating. A civil complaint is not required to be, and generally is not, a catalogy of every piece of relevant information the filing party has. And it especially isn't a catalog of everything they know where a civil lawsuit isn't the venue for addressing it. > If the CFTC believed Binancing knowing facilitated criminal activity on the part of Bitzlato, that’d be in the complaint. No, if the CFTC believed that, it would be in the criminal referral to DoJ, and, if DoJ could support it to the required level to move forward, it would be in the criminal indictment DoJ would seek from an appropriate grand jury. Those typically lag considerably behind civil action from the same regulatory-body investigation (sometimes with indictments issued after the civil complaint is settled or otherwise resolved.)
cemerick 4y ago
Come on. Further down in the op-ed you linked, he cites evidence in the complaint about Binance being used to launder funds for Hamas and Russia. The feds happened to get Capone on mail fraud; if they see that they can pinch off such laundering with the help of some ostensibly consumer-focused CFTC authorities, that's what's going to happen.
- darawk 4y ago
  You mean the $600 ex-post identified Hamas transaction? That one? He cites it grudgingly, because it's total bullshit. He very clearly articulates what he thinks the substance of the complaint is, and it is not terrorist financing. Here is the actual lead in to him quoting that part: > Anyway I said that there are only a few accusations of financing crimes or secretly trading against customers in the CFTC complaint, but there are not none, and I should quote them. Here’s this: Judge for yourself if I am misrepresenting his view.
  - mattmaroon 4y ago
    It does not say that there was only one $600 transaction, only that a $600 transaction can barely buy a particular weapon. It says that they're structuring the payments to be small to avoid money laundering notice. '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.' We have no idea from this what sort of money laundering Hamas was doing on Binance, or if it was found ex-post, but we do know that at least one Binance employee thought they were using it for crime.
    - darawk 4y ago
      We do not know that. All we know is that a Binance employee knew about a $600 transaction, and made a general statement about the behavior of groups like this. We know nothing beyond that.
jevgeni 4y ago
This is a misrepresentation of Levine’s article. He explains that it’s illegal to operate a derivatives exchange without being registered at the very least.
- darawk 4y ago
  I read the whole thing. I don't think it's a misrepresentation at all. You're free to quote the sections you think contradict it.
  - jevgeni 4y ago
    OP suggests that the point of the article is that CFTC is doing that just to exert control onto Binance and finds tenuous reasons to do so. That's not the case as I've said in my previous comment.
mattmaroon 4y ago
They don't need a smokescreen. Binance's CEO instructed his employees to teach American firms how to use a VPN to hide their Americanness, despite the fact that they can't legally offer services to American firms. (This is especially strange because it was for people using their API, and you'd assume programmers who can integrate an API to trade derivatives have heard of VPNs, so I have to assume they were simply unaware that Binance was blocking America.) He even specifically said to not put it in writing! Extra hilarious that he put that message in writing, one wonders had he done that IRL or over the phone where this case would be right now. I suppose you could argue about whether the CFTC's relevant regulations protect anyone, but they certainly think they do, and if so it's easy to argue that Binance was skirting those protections.
- hailwren 4y ago
  > I suppose you could argue about whether the CFTC's relevant regulations protect anyone, but they certainly think they do, and if so it's easy to argue that Binance was skirting those protections. There are two weird things here. The first is that the CFTC does have purvue to protect the American people. However, if Binance were to simply say “we now accept US citizens” — the trading cited here would be allowed. Market makers are accredited investors. It’s rather because they offer services to investors who are not US based which, if they were offered to US investors, would only be allowed to be offered to Accredited Investors — Binance has chosen to not offer services in the US, and allowed Accredited Investors (the same group who would be permitted if they did operate in the US). The case is interesting. Even though these traders were operating significant portions of their business from the US, the claim will be made that they were acting as their international subsidiary.
  - JumpCrisscross 4y ago
    > if Binance were to simply say “we now accept US citizens” — the trading cited here would be allowed No, it wouldn't. Derivatives exchanges and swaps settlement requires licenses, e.g. from the CFTC. Also, the swaps analog for accredited investor is eligible contract participant (ECP) [1]. [1] https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/msp_ecp_factsheet_final.pdf https://www.cftc.gov/sites/default/files/idc/groups/public/@...
lordfrito 4y ago
> The "terrorist financing" and retail stuff is a smokescreen to seem worthy of the CFTC's attention. Nobody is being protected here. No significant terrorist financing is being stopped. So enlighten me, what is the actual $$$ threshold where "terrorist financing" can be deemed a legitimate complaint? Crypto space is chock-full of scammers, hustlers, bad actors, and organized crime. Which of the crimes are worth paying attention to and which aren't? Has the bar slipped that low that some crimes are "small" and aren't worth going after? Seems like a stones throw away from whataboutism.
- darawk 4y ago
  > So enlighten me, what is the actual $$$ threshold where "terrorist financing" can be deemed a legitimate complaint? I don't know, more than the percentage of your average multinational bank? No large financial institution is going to have literally zero unsavory characters using its services. > Crypto space is chock-full of scammers, hustlers, bad actors, and organized crime. Which of the crimes are worth paying attention to and which aren't? Has the bar slipped that low that some crimes are "small" and aren't worth going after? The point of my comment and Matt Levine's article is that they are not going after these things. They are superficial artifice on top of the real thing they are going after them for: allowing US HFT firms to trade there.
- hailwren 4y ago
  > So enlighten me, what is the actual $$$ threshold where "terrorist financing" can be deemed a legitimate complaint? It seems reasonable to at least set the lower bound above Deutsche Bank who are frequently in the spotlight for AML and terrorist financing for amounts far greater than $600 and operating today.
JumpCrisscross 4y ago
> Nobody is being protected here Cracking down on a shadow derivatives exchange doing swaps with American institutions is bona fide CFTC enforcement. Most securities law is written from an investor-protection perspective. Not swaps clearing. When everyone is writing bilateral swaps and nobody knows how much counterparty risk is accumulating with whom, you get a ticking time bomb. (This is what turned AIG into a systemic risk.) I imagine the next shoe to drop will be these firms' compliance departments.
- darawk 4y ago
  > Most securities law is written from an investor-protection perspective. Not swaps clearing. When everyone is writing bilateral swaps and nobody knows how much counterparty risk is accumulating with whom, you get a ticking time bomb. (This is what turned AIG into a systemic risk.) I imagine the next shoe to drop will be these firms' compliance departments. Certainly I agree with you that, in principle, this is legitimate enforcement. They do have the authority to regulate this as you are saying they do. But you and I both know that there are no serious concerns within the CFTC about counterparty risk here, and that has nothing to do with their motivations. They are very clearly not trying to protect anyone - at least not from derivatives counterparty risk. And they are most definitely not trying to protect Citadel, Jump, et al, nor anyone else from them.
avnfish 4y ago
For those interested, he's mostly talking about Jump. Jane Street and Cumberland DRW too possibly.
vba616 4y ago
I had originally misread that as a New Jersey company, and it makes more sense now that I realize it must mean the Channel island.

by darawk 4y ago

deleted 4y ago

[deleted]

pavlov 4y ago

> “No significant terrorist financing is being stopped.” How do you know? When Binance’s own Chief Compliance Officer was primarily in the business of helping customers avoid compliance, it doesn’t seem like they would know very much about what ultimately went down on the platform. The complaint quotes an internal email that read: “We close our eyes.” Binance was a major counterparty of Bitzlato, a crypto exchange that existed primarily for Russian money laundering: https://www.reuters.com/business/finance/binance-moved-346-mln-seized-crypto-exchange-bitzlato-data-show-2023-01-24/ https://www.reuters.com/business/finance/binance-moved-346-m... That’s probably the tip of the iceberg. The CFTC’s complaint naturally focuses on the stuff that’s easiest for them to prove. Getting evidence from hedge funds based in Chicago is obviously a lot easier for a civil agency that doesn’t have enormous resources.

darawk 4y ago
> How do you know? When Binance’s own Chief Compliance Officer was primarily in the business of helping customers avoid compliance, it doesn’t seem like they would know very much about what ultimately went down on the platform. The complaint quotes an internal email that read: “We close our eyes.” I don't, but obviously the CFTC doesn't either, otherwise they'd have spelled it out. So, considering the party investigating is ignorant of any significant terrorist financing activity, I see no reason to think otherwise. > Binance was a major counterparty of Bitzlato, a crypto exchange that existed primarily for Russian money laundering: https://www.reuters.com/business/finance/binance-moved-346-m https://www.reuters.com/business/finance/binance-moved-346-m... There is nothing in the complaint stating that Binance knowingly facilitated any criminal activity of Bitzlato, afaik. The fact that criminal actors had an account at a financial institution is not prima facie evidence of any crime on the part of the financial institution, especially not for one that isn't registered in the US. Even for US registered entities, plenty of criminals have bank accounts. It's the bank's job to perform a certain level of diligence to stop them, not an infinite level of diligence. If the CFTC believed Binancing knowing facilitated criminal activity on the part of Bitzlato, that'd be in the complaint. It's not, therefore, they don't. Or at the very least, they have insufficient evidence for it. So any suggestion that significant terrorist financing is being stopped here is pure speculation, unsupported by anything in the document itself.
- dragonwriter 4y ago
  > I don’t, but obviously the CFTC doesn’t either, otherwise they’d have spelled it out. Or, they do know and more detail wasn’t relevant at the complaint stage of the civil case, whereas it might be to the actual trial and to the parallel criminal referral that it has been reported that DoJ is investigating. A civil complaint is not required to be, and generally is not, a catalogy of every piece of relevant information the filing party has. And it especially isn't a catalog of everything they know where a civil lawsuit isn't the venue for addressing it. > If the CFTC believed Binancing knowing facilitated criminal activity on the part of Bitzlato, that’d be in the complaint. No, if the CFTC believed that, it would be in the criminal referral to DoJ, and, if DoJ could support it to the required level to move forward, it would be in the criminal indictment DoJ would seek from an appropriate grand jury. Those typically lag considerably behind civil action from the same regulatory-body investigation (sometimes with indictments issued after the civil complaint is settled or otherwise resolved.)

cemerick 4y ago

Come on. Further down in the op-ed you linked, he cites evidence in the complaint about Binance being used to launder funds for Hamas and Russia. The feds happened to get Capone on mail fraud; if they see that they can pinch off such laundering with the help of some ostensibly consumer-focused CFTC authorities, that's what's going to happen.

darawk 4y ago
You mean the $600 ex-post identified Hamas transaction? That one? He cites it grudgingly, because it's total bullshit. He very clearly articulates what he thinks the substance of the complaint is, and it is not terrorist financing. Here is the actual lead in to him quoting that part: > Anyway I said that there are only a few accusations of financing crimes or secretly trading against customers in the CFTC complaint, but there are not none, and I should quote them. Here’s this: Judge for yourself if I am misrepresenting his view.
- mattmaroon 4y ago
  It does not say that there was only one $600 transaction, only that a $600 transaction can barely buy a particular weapon. It says that they're structuring the payments to be small to avoid money laundering notice. '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.' We have no idea from this what sort of money laundering Hamas was doing on Binance, or if it was found ex-post, but we do know that at least one Binance employee thought they were using it for crime.
  - darawk 4y ago
    We do not know that. All we know is that a Binance employee knew about a $600 transaction, and made a general statement about the behavior of groups like this. We know nothing beyond that.

jevgeni 4y ago

This is a misrepresentation of Levine’s article. He explains that it’s illegal to operate a derivatives exchange without being registered at the very least.

darawk 4y ago
I read the whole thing. I don't think it's a misrepresentation at all. You're free to quote the sections you think contradict it.
- jevgeni 4y ago
  OP suggests that the point of the article is that CFTC is doing that just to exert control onto Binance and finds tenuous reasons to do so. That's not the case as I've said in my previous comment.

mattmaroon 4y ago

They don't need a smokescreen. Binance's CEO instructed his employees to teach American firms how to use a VPN to hide their Americanness, despite the fact that they can't legally offer services to American firms. (This is especially strange because it was for people using their API, and you'd assume programmers who can integrate an API to trade derivatives have heard of VPNs, so I have to assume they were simply unaware that Binance was blocking America.) He even specifically said to not put it in writing! Extra hilarious that he put that message in writing, one wonders had he done that IRL or over the phone where this case would be right now. I suppose you could argue about whether the CFTC's relevant regulations protect anyone, but they certainly think they do, and if so it's easy to argue that Binance was skirting those protections.

hailwren 4y ago
> I suppose you could argue about whether the CFTC's relevant regulations protect anyone, but they certainly think they do, and if so it's easy to argue that Binance was skirting those protections. There are two weird things here. The first is that the CFTC does have purvue to protect the American people. However, if Binance were to simply say “we now accept US citizens” — the trading cited here would be allowed. Market makers are accredited investors. It’s rather because they offer services to investors who are not US based which, if they were offered to US investors, would only be allowed to be offered to Accredited Investors — Binance has chosen to not offer services in the US, and allowed Accredited Investors (the same group who would be permitted if they did operate in the US). The case is interesting. Even though these traders were operating significant portions of their business from the US, the claim will be made that they were acting as their international subsidiary.
- JumpCrisscross 4y ago
  > if Binance were to simply say “we now accept US citizens” — the trading cited here would be allowed No, it wouldn't. Derivatives exchanges and swaps settlement requires licenses, e.g. from the CFTC. Also, the swaps analog for accredited investor is eligible contract participant (ECP) [1]. [1] https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/msp_ecp_factsheet_final.pdf https://www.cftc.gov/sites/default/files/idc/groups/public/@...

lordfrito 4y ago

> The "terrorist financing" and retail stuff is a smokescreen to seem worthy of the CFTC's attention. Nobody is being protected here. No significant terrorist financing is being stopped. So enlighten me, what is the actual $$$ threshold where "terrorist financing" can be deemed a legitimate complaint? Crypto space is chock-full of scammers, hustlers, bad actors, and organized crime. Which of the crimes are worth paying attention to and which aren't? Has the bar slipped that low that some crimes are "small" and aren't worth going after? Seems like a stones throw away from whataboutism.

darawk 4y ago
> So enlighten me, what is the actual $$$ threshold where "terrorist financing" can be deemed a legitimate complaint? I don't know, more than the percentage of your average multinational bank? No large financial institution is going to have literally zero unsavory characters using its services. > Crypto space is chock-full of scammers, hustlers, bad actors, and organized crime. Which of the crimes are worth paying attention to and which aren't? Has the bar slipped that low that some crimes are "small" and aren't worth going after? The point of my comment and Matt Levine's article is that they are not going after these things. They are superficial artifice on top of the real thing they are going after them for: allowing US HFT firms to trade there.
hailwren 4y ago
> So enlighten me, what is the actual $$$ threshold where "terrorist financing" can be deemed a legitimate complaint? It seems reasonable to at least set the lower bound above Deutsche Bank who are frequently in the spotlight for AML and terrorist financing for amounts far greater than $600 and operating today.

JumpCrisscross 4y ago

> Nobody is being protected here Cracking down on a shadow derivatives exchange doing swaps with American institutions is bona fide CFTC enforcement. Most securities law is written from an investor-protection perspective. Not swaps clearing. When everyone is writing bilateral swaps and nobody knows how much counterparty risk is accumulating with whom, you get a ticking time bomb. (This is what turned AIG into a systemic risk.) I imagine the next shoe to drop will be these firms' compliance departments.

darawk 4y ago
> Most securities law is written from an investor-protection perspective. Not swaps clearing. When everyone is writing bilateral swaps and nobody knows how much counterparty risk is accumulating with whom, you get a ticking time bomb. (This is what turned AIG into a systemic risk.) I imagine the next shoe to drop will be these firms' compliance departments. Certainly I agree with you that, in principle, this is legitimate enforcement. They do have the authority to regulate this as you are saying they do. But you and I both know that there are no serious concerns within the CFTC about counterparty risk here, and that has nothing to do with their motivations. They are very clearly not trying to protect anyone - at least not from derivatives counterparty risk. And they are most definitely not trying to protect Citadel, Jump, et al, nor anyone else from them.

avnfish 4y ago

For those interested, he's mostly talking about Jump. Jane Street and Cumberland DRW too possibly.

vba616 4y ago

I had originally misread that as a New Jersey company, and it makes more sense now that I realize it must mean the Channel island.