# Tai Chi Strategy The **Tai Chi Strategy** is a regulatory evasion scheme attributed to [[Binance]], the world's largest cryptocurrency exchange, in which a nominally independent US entity — ultimately launched as Binance.US — was designed to absorb American regulatory scrutiny while the far more profitable international exchange (Binance.com) continued serving US customers with minimal oversight. The name derives from the martial-arts principle of "yield and overcome," or redirecting an opponent's force rather than confronting it directly. The strategy was revealed through a leaked 2018 internal document first reported by Forbes in October 2020 and later became a centerpiece of the [[SEC]]'s 2023 enforcement complaint against [[Binance]] and [[Changpeng Zhao]]. ## The Document The so-called "Tai Chi document" was presented to [[Changpeng Zhao]] (CZ) in Q4 2018 by Jared Gross, Binance's mergers and acquisitions manager (believed by Forbes to have been serving as general counsel). Its attributed author is Harry Zhou, a serial entrepreneur with experience launching American subsidiaries of Chinese companies — he had previously served as general counsel at HBUS, the US arm of rival exchange Huobi, and co-founded Koi Trading Systems with $3 million in backing from Binance's venture capital arm. The document has four main sections: Goals, Proposed Corporate Structure, Regulator Engagement Plans, and Long-Term License Plans. ### Core Mechanics The plan called for the creation of a "Tai Chi entity" — a US-incorporated exchange that would: 1. **Shield the parent exchange** — maintain only a contractual relationship to Binance, insulating the international platform from US enforcement jurisdiction 2. **Absorb regulatory attention** — engage proactively with the [[SEC]], [[CFTC]], and state regulators, presenting a cooperative face that would "reveal, retard, and resolve built-up enforcement tensions" 3. **Enable continued US trading** — while the Tai Chi entity performed compliance theater, the main Binance.com platform would continue onboarding American users, with the document explicitly referencing the "strategic" use of VPNs to obscure trader locations and evade detection by the SEC and the New York Department of Financial Services 4. **Capture revenue** — route a fraction of US volume through the compliant entity while the bulk of American trading (and its fees) flowed through the unregulated international platform The martial-arts metaphor was intentional: the US subsidiary would redirect regulatory force away from Binance's real operations, using the appearance of compliance as a defensive weapon. ## Implementation: BAM Trading and Binance.US In August 2019, the structure outlined in the Tai Chi document materialized. BAM Trading Services Inc. was registered as a Delaware C-corp with an alternative name of Binance.US. Catherine Coley was installed as CEO. Both Coley and CZ publicly maintained there were no ownership ties between BAM Trading and Binance — a claim the [[SEC]] would later dispute. The [[SEC]]'s June 2023 complaint alleged that [[Binance]] "implemented much of the Tai Chi Plan," asserting that CZ and Binance established "policies and controls to give the impression that the Binance.com platform was blocking U.S. customers while at the same time secretly subverting those controls." The complaint described Binance.US as a regulated front designed to protect the real money-maker. ## Enforcement and Consequences ### SEC Complaint (June 2023) The [[SEC]] sued [[Binance]], BAM Trading, and [[Changpeng Zhao]] on June 5, 2023, citing the Tai Chi document extensively. The complaint alleged violations including operating an unregistered securities exchange, offering unregistered securities, and commingling customer funds. The SEC characterized the Tai Chi strategy as evidence of deliberate, premeditated regulatory evasion. ### CFTC Action The [[CFTC]] filed parallel charges against [[Binance]] and CZ for violations of the Commodity Exchange Act, including failure to register as a futures commission merchant and allowing US persons to trade derivatives without proper oversight. ### DOJ Settlement and Guilty Plea (November 2023) On November 21, 2023, [[Changpeng Zhao]] pleaded guilty to violating the Bank Secrecy Act by failing to maintain an effective anti-money laundering program. [[Binance]] pleaded guilty and agreed to a total criminal penalty of $4,316,126,163 — comprising $2.51 billion in forfeiture and a $1.81 billion criminal fine. The settlement was coordinated across the DOJ, [[FinCEN]], the [[CFTC]], and the Office of Foreign Assets Control (OFAC). CZ stepped down as CEO and was sentenced on April 30, 2024 to four months in federal prison — far less than the 36-month sentence prosecutors had sought. As part of the plea, [[Binance]] agreed to retain an independent compliance monitor for three years. The sanctions violations included facilitating transactions with users in Iran, Cuba, [[Syria]], and Russian-occupied areas of Ukraine. ### Forbes Lawsuit After Forbes published its Tai Chi exposé in October 2020, [[Binance]] sued the publication. CZ publicly dismissed the document, claiming it was "not produced by a Binance employee" and that "anyone can produce a strategy document." Binance quietly dropped the lawsuit in 2021 — and the SEC's 2023 complaint vindicated Forbes's reporting. ## Pattern Recognition The Tai Chi Strategy represents a sophisticated version of a recurring pattern in financial-regulatory evasion: creating a compliant subsidiary to absorb enforcement attention while the real business operates in a permissive or opaque jurisdiction. Key structural parallels include: - **FTX's dual structure** — [[FTX]] similarly operated FTX.US as a regulated entity while the Bahamas-based FTX.com served as the primary trading venue, commingling customer funds through [[Sam Bankman-Fried]]'s Alameda Research - **Offshore banking secrecy** — the strategy mirrors [[Offshore Financial Secrecy]] patterns where onshore entities maintain regulatory relationships while offshore vehicles hold the actual assets and conduct the actual business - **[[Wash Trading]] and volume manipulation** — the separation of regulated and unregulated venues enables volume manipulation and fee extraction that would be impossible under unified regulatory oversight The core insight is that regulatory arbitrage at this scale requires not just finding gaps between jurisdictions, but actively constructing a decoy to keep enforcers focused on the wrong target. ## KB Relevance The Tai Chi Strategy connects to several major threads tracked in this vault: - **[[Crypto-Political Machine]]** — the strategy's partial success depended on the broader crypto industry's lobbying to delay enforcement. The same political infrastructure that funded [[Crypto Super PACs]] and installed friendly regulators created the permissive environment that allowed the Tai Chi structure to operate for years - **[[Regulatory Capture]]** — the strategy is a mirror image of capture: rather than controlling the regulator, it creates a false target to exhaust regulatory resources. Both achieve the same result — the real business operates without effective oversight - **[[Prosecutorial Threat]]** — CZ's four-month sentence for a $4.3B fraud raises questions about whether criminal penalties in crypto are calibrated to deter. Compare [[Sam Bankman-Fried]]'s 25-year sentence for FTX — the disparity maps how cooperation (CZ) vs. trial (SBF) produces wildly different outcomes - **[[Deregulation]]** — the Tai Chi Strategy's success window (2019–2023) coincided with regulatory uncertainty about crypto jurisdiction between the [[SEC]] and [[CFTC]], a gap the crypto industry has since lobbied to formalize rather than close - **[[Trump Crypto Ventures]]** — the current administration's embrace of crypto raises the question of whether strategies like Tai Chi become unnecessary when the regulators themselves are ideologically aligned with the industry