Changpeng Zhao, Binance’s former chief executive, was sentenced to four months in prison on Tuesday after pleading guilty to violating U.S. money laundering laws at the world’s largest cryptocurrency exchange.
The sentence was imposed by U.S. District Judge Richard Jones in Seattle, who rejected prosecutors’ request for a three-year prison sentence for the 47-year-old Zhao.
Zhao, known as “CZ,” was once considered the most powerful person in the cryptocurrency industry and is the second major crypto boss to be sentenced to prison after Sam Bankman-Fried. In March, Bankman-Fried was sentenced to 25 years in prison for stealing $8 billion from customers of his now-bankrupt FTX exchange.
Zhao pleaded guilty in November to failing to take necessary measures to combat money laundering and resigned when Binance agreed to pay $4.3 billion to resolve related allegations.
U.S. officials said Zhao intentionally looked the other way as people conducted transactions that supported child sexual abuse, illegal drug trafficking and “terrorism.”
“I have failed here,” Zhao said before U.S. District Judge Richard A. Jones handed down the sentence. “I deeply regret my failure and I am sorry.”
“I believe the first step to taking responsibility is to fully recognize the mistakes. Here I failed to implement an adequate anti-money laundering program… I now realize the gravity of that mistake,” he said.
Prosecutors had told the judge that a harsh sentence would send a clear message to other would-be criminals.
“We are not suggesting that Mr. Zhao is Sam Bankman-Fried or that he is a monster,” said prosecutor Kevin Mosley. But Zhao’s behavior, he said, “was not a mistake. That wasn’t a regulatory ‘oops’.”
The three-year prison sentence demanded by the public prosecutor was more than twice the standard limit for the crime. If he didn’t get time in custody for the crime, no one would, making the law ineffective, they argued.
Zhao was free on $175 million bail and agreed not to appeal a sentence within federal guidelines. Zhao also paid $50 million to the Commodity Futures Trading Commission.
Transactions in violation of US sanctions
Binance allowed more than 1.5 million virtual currency trades totaling nearly $900 million in violation of U.S. sanctions, including those against Hamas’s Qassam Brigades, al-Qaeda and Iran.
“He made a business decision that violating U.S. law was the best way to attract users, build his business, and line his pockets,” the U.S. Department of Justice wrote in a sentencing memorandum filed last week.
Zhao’s lawyers insisted he should receive no prison sentence at all, citing his willingness to travel to the United States from the United Arab Emirates, where he and his family live, to plead guilty, even though the UAE does not have an extradition treaty the USA have.
No one had ever been sentenced to prison for similar violations of the Bank Secrecy Act, defense attorneys Mark Bartlett and William Burck told the judge on Tuesday, and Zhao began making changes before his resignation to make Binance a role model for compliance with bank transparency rules .
“There is no excuse for my failure to put necessary compliance controls in place at Binance,” Zhao wrote in a letter to the court. “I wish I could change this part of Binance’s story. But under my leadership, Binance has now implemented the strictest anti-money laundering controls of any non-U.S. exchange, and these controls have been in place since 2022.”
Prosecutors said no one had ever violated the Bank Secrecy Act to the extent that Zhao did.
“In hindsight, he says he should have done a better job,” Justice Department attorney Kevin Mosley said in court. “That wasn’t a mistake. When Mr. Zhao violated the BSA, he was fully aware of the requirements.”
Zhao knew that Binance was required to adopt anti-money laundering protocols, but instead directed the company to obscure customers’ locations in the United States to avoid complying with U.S. laws, prosecutors said.
Several other crypto moguls are also in the crosshairs of US authorities after the 2022 cryptocurrency price collapse exposed fraud and misconduct across the industry.