Changpeng Zhao, founder of Binance, the world’s largest cryptocurrency exchange, was sentenced to four months in prison.
Judge Richard Jones, who presided over Tuesday’s sentencing hearing in the Western District of Washington, imposed a lighter sentence than the three years sought by prosecutors.
Last November, Zhao – better known as CZ – pleaded guilty to willfully violating anti-money laundering regulations that enabled hundreds of millions of dollars in transactions involving US-sanctioned companies, including Iran and Cuba , which ran through the Binance platform. The settlement required Zhao to resign as CEO of Binance and accept a $150 million fine, while the company had to pay a $4.3 billion penalty.
“Zhao’s intentional violation of U.S. law was not accidental or accidental,” the U.S. Department of Justice wrote in a court filing before the sentencing. “He made a business decision that violating U.S. law was the best way to attract users, build his business and line his pockets.”
In the filing, prosecutors called for a 36-month sentence for Zhao, citing the need to “deter others who are tempted to build fortunes and business empires through violations of U.S. law.” Zhao’s lawyer requested probation on the grounds that no defendant in a similar case “has ever been sentenced to prison.”
To reach an appropriate sentence for Zhao, the judge had to “look beyond the guidelines” and consider the context beyond the facts of the underlying crime, says Daniel Richman, a law professor at Columbia University and a former federal prosecutor. These include the defendant’s character, likelihood of recidivism, prior offenses and other factors.
In a letter to the judge before the hearing, Zhao apologized for his behavior and took responsibility for Binance’s failure to establish an effective compliance program. “Words cannot explain how much I regret my decisions that led to me being put on trial,” he wrote. “Please accept my assurance that this will be my only encounter with the criminal justice system.”
Zhao’s willingness to “plead guilty and accept responsibility” will have worked in his favor, Richman says, but the evidence of his blatant disregard for the law will have weighed heavily on the judge. “When you have someone who has broken the law so persistently, you can expect respect for the law to play a large role in the sentence the judge imposes,” Richman says.
Zhao is the second crypto figurehead in as many months to face criminal conviction in the US. On March 28, Sam Bankman-Fried or SBF, founder of the bankrupt crypto exchange FTX, was sentenced to 25 years in prison. Before they both fell from grace, the two vied for control of the foreign exchange market and reportedly engaged in frequent arguments. But that’s where the similarities between the cases end.
“It’s a simple comparison, but an imperfect one,” said Daniel Silva, an attorney at Buchalter Law Firm and a former U.S. attorney. “CZ pleaded guilty to failing to comply with the law as required of an executive of a financial institution. Things were different with SBF: he misused client funds that he had obtained through fraudulent statements and material omissions of facts.”
In her own filing, Zhao’s lawyer made a thinly veiled reference to the distinction. “Mr. Zhao was only convicted of money laundering [anti-money-laundering] Compliance failure,” they wrote. “He did not defraud any investors, there was no misappropriation of customer funds.” Their client, they seemed to say, was not an SBF.
As part of his sentence, Zhao will not have to forfeit the wealth he amassed as the founder of Binance. Despite leaving Binance in November, Zhao reportedly retains an estimated 86 percent stake in the exchange and remains worth tens of billions of dollars.
The Justice Department, which had secured few landmark crypto convictions until last year, will still celebrate the conviction. “Whether people criticize the verdict as being too light, it sends a healthy message,” Silva said. The goal is to “stop the next CEO of a crypto or financial institution from making fun of anti-money laundering regulations.”