Changpeng Zhao, the billionaire founder of Binance, the world’s largest cryptocurrency exchange, was sentenced to four months in prison on Tuesday after pleading guilty to violating U.S. money laundering laws.
The sentence, handed down in a federal court in Seattle, is significantly lighter than the three years prosecutors had sought and the 25-year sentence given to Zhao’s former rival, Sam Bankman-Fried, for fraud at FTX.
TLDR
- Changpeng Zhao, the founder of Binance, the world’s largest cryptocurrency exchange, was sentenced to four months in prison for violating U.S. money laundering laws.
- Zhao pleaded guilty last year to willfully failing to implement an effective anti-money laundering program at Binance, allowing the platform to process transactions involving illegal proceeds.
- The sentence is significantly lighter than the three years prosecutors had sought, and the 25 years given to Zhao’s rival, Sam Bankman-Fried, for fraud at FTX.
- Binance agreed to pay a $4.32 billion penalty, and Zhao paid $100 million in fines to the U.S. government.
- Prosecutors accused Binance of operating a “Wild West” model that welcomed criminals, failed to report over 100,000 suspicious transactions, and facilitated the sale of child sexual abuse materials and ransomware proceeds.
Zhao, commonly known as CZ, struck a deal with the U.S. government last November, admitting to willfully failing to implement an effective anti-money laundering program at Binance as required by the Bank Secrecy Act.
This allowed the platform to process transactions involving proceeds of illegal activities, including between Americans and individuals in sanctioned jurisdictions.
As part of the settlement, Binance agreed to pay more than $4.32 billion in fines and other penalties, while Zhao personally paid $50 million in criminal fines and another $50 million to the U.S. Commodity Futures Trading Commission (CFTC).
The 47-year-old billionaire also stepped down as Binance’s CEO, although he still holds a significant stake in the company.
During the sentencing hearing, U.S. District Judge Richard Jones criticized Zhao for prioritizing Binance’s growth and profitability over complying with U.S. laws.
“You had the wherewithal, the finance capabilities, and the people power to make sure that every single regulation had to be complied with, and so you failed at that opportunity,” Jones told Zhao.
Prosecutors painted a damning picture of Binance’s operations, accusing the exchange of employing a “Wild West” model that welcomed criminals.
Changpeng Zhao, the former CEO of Binance, was sentenced to four months in prison for violating US laws against money laundering at the world's largest cryptocurrency exchange https://t.co/y20cmWuD5E pic.twitter.com/EKIAWNQb8g
— Reuters (@Reuters) May 1, 2024
According to court documents, Binance failed to report more than 100,000 suspicious transactions with designated terrorist groups, including Hamas, al-Qaeda, and Islamic State. The platform also allegedly facilitated the sale of child sexual abuse materials and received a large portion of ransomware proceeds.
“We are not suggesting that Mr. Zhao is Sam Bankman-Fried or that he is a monster,” prosecutor Kevin Mosley said during the hearing. “But Zhao’s conduct wasn’t a mistake. This wasn’t a regulatory ‘oops.'”
In seeking a shorter sentence, Zhao’s defense lawyers argued that others who admitted to similar wrongdoing, such as BitMEX founder Arthur Hayes, were not incarcerated. They claimed that Zhao “wanted to make a difference in the world” but made mistakes.
While acknowledging the seriousness of Zhao’s actions, Judge Jones said the three-year sentence requested by prosecutors was inappropriate because they did not show that Zhao knew in advance about the illegal activity on Binance’s platform.
The sentencing of Zhao and the massive fines imposed on Binance underscore the U.S. government’s tougher stance against financial crimes and the crypto industry’s long-standing reputation as a haven for illicit activities.
Crypto skeptics have criticized the sentence as too lenient, with Dennis Kelleher, CEO of the nonprofit Better Markets, stating, “‘Crime pays’ is the message sent today.”
Despite the criticism, prosecutors hailed the outcome as a significant victory, with U.S. Attorney Tessa Gorman declaring, “This was an epic day. Incarceration was critical in this case, and we’re pleased with the result.”
