Cryptocurrency exchange Binance founder Changpeng Zhao sentenced to 4 months in prison

Changpeng Zhaoformer CEO of Binancewas sentenced Tuesday to four months in prison after pleading guilty to violating U.S. anti-money laundering laws at the world’s largest bank cryptocurrency exchange.

Once considered the most powerful cryptocurrency Zhao, known as industry figure “CZ”, is the second major crypto boss to be sentenced to prison.

The sentence imposed by U.S. District Judge Richard Jones in Seattle was significantly shorter than the three years requested by prosecutors and below the maximum of 1 1/2 years recommended by federal guidelines.

It was also a lot lighter than the 25 years behind bars Sam Bankman Fried received in March for stealing $8 billion (about 66,788 million rupees) from customers of his now-bankrupt company FTX exchange. Bankman-Fried is appealing his conviction and sentence.

Still, prosecutors welcomed the outcome of what had been a years-long investigation into Binance and Zhao, a billionaire who lived out of reach of the United States in the United Arab Emirates.

“It was an epic day,” U.S. Attorney Tessa Gorman told reporters outside the courthouse. “Incarceration was key in this case and we are pleased with the outcome.”

Before handing down the sentence, Jones faulted Zhao for giving Binance’s growth and profitability a higher priority than complying with US laws.

“You had the means, the financial ability and the people power to ensure that every single regulation was followed, and then you failed at this opportunity,” he said.

Zhao, 47, did not visibly react after hearing his sentence.

He wore a dark blue suit and tie in the courtroom, with his mother and several other family members present. Defense lawyers had asked for probation.

“‘Crime pays’ is the message sent today,” Dennis Kelleher, head of the financial reform advocacy group Better Markets, wrote in an email, noting that Zhao will still be able to keep his vast wealth.

‘I am sorry’

Prosecutors said Binance used a “Wild West” model that harbored criminals and failed to report more than 100,000 suspicious transactions with designated terrorist groups including Hamas, al-Qaeda and Islamic State.

They also said Zhao’s exchange supported the sale of child pornography and received much of the ransomware proceeds.

Binance accepted a fine of $4.32 billion (about Rs. 36,065 crore) and Zhao paid a criminal fine of $50 million (about Rs. 417 crore) plus $50 million to the Commodity Futures Trading Commission of the United States United.

“I’m sorry,” Zhao told the judge before he was sentenced.

“I believe the first step in taking responsibility is to fully acknowledge the mistakes. I failed to implement an adequate anti-money laundering program here… I now realize the severity of that mistake.”

Much of Binance’s misconduct, including its weak money laundering controls, was first reported by Reuters.

Zhao will voluntarily surrender to serve his sentence, most likely in a detention center near Seattle-Tacoma International Airport.

“Not prioritizing compliance is a few shades below criminal intent. It’s bad, but it falls below the normal “specific intent requirement” that would justify a years-long sentence, said Robert Frenchman, a lawyer who specializes in white-collar crime.

But given the scope of Binance’s violations and the large fines imposed, he should not have expected probation or home detention, Frenchman added.

Not a monster

Prosecutors had told the judge that a tough sentence would send a clear signal to other potential criminals.

“We are not suggesting that Mr. Zhao is Sam Bankman-Fried or that he is a monster,” prosecutor Kevin Mosley said.

But Zhao’s conduct, he said, “was not a mistake. It was not a regulatory ‘oops’.”

Zhao resigned as head of Binance in November, when he and the exchange he founded in 2017 admitted to evading money laundering requirements under the Bank Secrecy Act.

In asking for probation, defense lawyers said others who admitted to similar wrongdoing, including BitMEX founder Arthur Hayes, were not locked up.

Zhao “wanted to make a difference in the world” but made mistakes, defense lawyer Mark Bartlett said.

Jones said the three-year sentence prosecutors sought was inappropriate because they did not prove that Zhao had advance knowledge of the illegal activity.

“It’s always the case that the government asks for more than it thinks it gets,” Frenchman said. “To go that far beyond the guidelines for a defender is unusually aggressive.”

Many other cryptocurrency tycoons are also in the crosshairs of US authorities after the collapse in cryptocurrency prices in 2022 exposed fraud and misconduct across the industry.

© Thomson Reuters 2024

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