In a letter sent in March, Binance may have deceived legislators in the United States regarding its business activities and association with its subsidiary in the country, according to a report by Bloomberg on June 8.
In a letter addressed to US Attorney General Merrick Garland, Senators Elizabeth Warren and Chris Van Hollen requested the Justice Department to examine whether Binance had given a false declaration to Congress earlier in the year. On June 5, the Securities and Exchange Commission (SEC) filed a lawsuit alleging that Binance’s global entity and American unit were intermingled.
In March, three U.S. Senators, headed by Warren, wrote a letter to Changpeng “CZ” Zhao, CEO of Binance, and Brian Shroder, CEO of Binance.US, inquiring about the exchange’s activities and asking for balance sheets. The senators accused Binance and its American branch of attempting to sidestep local regulators, dodge sanctions, and assist in money laundering.
Approximately three weeks after, Binance’s Chief Strategy Officer Patrick Hillman forwarded the documents that were requested by Congress, along with a 14-page letter that delved into the exchange’s compliance history. This letter recognized previous errors and asserted that the company had established strong Know Your Customer and Anti-Money Laundering protocols in the recent years.
Jack Graves, a law professor at Syracuse University, told Cointelegraph that it is essential for Binance.US to be independent from its parent organization for two reasons: regulatory jurisdiction and liability in the event of a malfunction.
“If you do not keep them separate, then the American regulators will pursue Binance International, claiming that they have authority over them since they are operating through the American branch. I believe that the SEC is currently assessing this,” said Graves.
The second point of consideration is the chance of Binance.US filing for bankruptcy. Graves mentioned that there is a fundamental rule that a company, not its owners, is liable for its liabilities. “Consequently, as long as Binance.US is completely separate, and it goes into bankruptcy, Binance International is not obligated to pay the debts of Binance.US.”
If the companies were mixing their funds, the owners, Binance’s global unit, would be liable in the event of bankruptcy. “That is why the corporate veil provides limited liability to the owners. A parent company like Binance International is just like any other owner: it is safeguarded from responsibility as long as the companies are truly separate,” Graves went on to say, noting that there could be exceptions.
On the 5th of June, the two companies released individual reactions to the SEC’s complaint. Binance’s international branch declared that it had “actively collaborated with the SEC’s probes and […] strived to answer their queries and satisfy their worries.” The trading platform also declared, “Although we take the SEC’s assertions seriously, they should not be the basis of a SEC enforcement action, particularly not on an urgent basis.”
Binance.US expressed that the SEC’s allegations are its “most recent illustration of regulation through enforcement.” The lawsuit “has no basis, and we are determined to fight back strongly,” it added.
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