Binance founder Changpeng Zhao was sentenced to four months in prison for failures that allowed cybercriminals and terrorist groups to trade freely on the world’s largest cryptocurrency exchange.
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(Bloomberg) — Binance founder Changpeng Zhao was sentenced to four months in prison for failures that allowed cybercriminals and terror groups to trade freely on the world’s largest cryptocurrency exchange.
Zhao, 47, was sentenced Tuesday in Seattle by U.S. District Judge Richard Jones. The billionaire appeared in court in a dark suit with a light blue tie, flanked by half a dozen lawyers. His mother and sister watched the verdict from the front row of the courtroom.
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In imposing the sentence, Jones said he hoped Zhao understood that despite “wealth, power and status,” no one is immune from prosecution or above U.S. laws. Zhao didn’t visibly react to the sentence.
Read more: Binance and CZ’s fortunes will grow, prison or not
The sentence was far less than the three years demanded by the public prosecutor. However, Zhao’s lawyers had pleaded with Jones to keep him out of prison, citing cases involving similar banking law violations that resulted in suspended sentences.
The finding concludes a long-running investigation by the Justice Department, which had sought to make an example of Zhao in an industry recovering from a series of high-profile scandals. The allegations cast a shadow over Binance and the man known as “CZ,” one of the industry’s most well-known figures.
Zhao has already paid a $50 million fine and resigned as Binance CEO in November as part of an agreement with the government. Binance also pleaded guilty to violations of the Money Laundering and Sanctions Act and agreed to pay a $4.3 billion fine and appoint an independent monitor to monitor compliance at the company.
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Before his sentencing, Zhao addressed the court. He said he traveled to Seattle to face charges instead of staying at his home in the United Arab Emirates, where there is no extradition treaty with the United States.
“I left my family to come to the United States and take responsibility for my actions,” Zhao said. “For me, responsibility is a central value that I live by.”
Federal prosecutor Kevin Mosley argued for a prison sentence for Zhao, saying the Binance founder’s violations of U.S. law were intentional and not accidental.
“It wasn’t a mistake,” Mosley said. “It wasn’t a regulatory ‘oops.'” But he also said the penalty the U.S. was seeking was proportionate. Mosley said the government is not claiming that Zhao’s crimes are comparable to those of FTX’s Sam Bankman-Fried, nor is it trying to “kill the crypto industry.”
Unlike Bankman-Fried, who was sentenced to 25 years in prison in March, Zhao was not accused of stealing client funds.
His conviction followed a multi-agency investigation into Binance, an exchange that began in Shanghai in 2017 and processed trillions of dollars’ worth of transactions each year.
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Zhao, who emigrated from China to Canada at the age of 12, pleaded guilty to failing to implement an adequate anti-money laundering program at Binance. Zhao’s efforts to prioritize his company’s growth over compliance allowed Binance to circumvent regulations that apply to financial institutions serving U.S. customers. The lack of an AML program led to illegal actors, including crypto mixers, hackers, and terrorist groups such as Al-Qaeda and ISIS, trading Bitcoin on the platform.
In one example described by the Financial Crimes Enforcement Network (FinCEN), the Al-Qassam Brigades, the military wing of Hamas, used Bitcoin transactions to raise money for the Palestinian resistance. Hamas, designated a terrorist organization by the United States, murdered more than 1,200 Israelis on October 7.
Prosecutors said Binance operated under a “Wild West model” that made it the colossus of crypto exchanges. While Zhao launched an American offshoot, Binance.US, in 2019, he provided a loophole for large traders to continue using the international platform.
The lack of compliance led some customers to trade with residents of Iran in violation of U.S. sanctions. Between 2018 and 2022, Binance processed at least 1.1 million transactions worth about $898 million that violated U.S. sanctions, the government memo said.
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The government did not allege that Zhao knew that the funds flowing through Binance were the proceeds of crime, his lawyers wrote in a sentencing memo. However, other Binance employees admitted that terrorists and customers from sanctioned countries such as Russia had used the exchange, the government said.
More than 160 friends, colleagues and investors submitted letters in support of Zhao, painting a picture of a humble, charitable family man and innovative entrepreneur who preferred Toyota minivans to luxury cars and his aunt’s home-cooked meals to five-star restaurants.
Zhao’s lawyers pointed to cases involving similar violations of the bank secrecy law and argued that an overwhelming majority of cases did not result in a prison sentence. BitMEX co-founder Arthur Hayes was sentenced to two years of probation and agreed to forfeit $10 million for failing to protect himself from money laundering.
Despite Zhao’s highly publicized criminal case, he has held on to his personal assets. His fortune increased by $25 billion as the crypto industry recovered last year, and he is currently the 38th richest person in the world, according to the Bloomberg Billionaires Index.
(Updates with details from the hearing, background information.)
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