Changpeng Zhao,
previously at the helm of
Binance,
received a four-month prison term on Tuesday following his admission of guilt for breaching
U.S. anti-money laundering statutes at the leading
crypto exchange.

Zhao, often referred to as “CZ” and once viewed as the crypto sector’s most influential person,
is now the second prominent cryptocurrency executive to be incarcerated.

The sentence rendered by U.S. District Judge Richard Jones in Seattle fell considerably short
of the three-year period that prosecutors had advocated for, and was less than the maximum
1.5 years suggested by federal sentencing guidelines.

Zhao’s sentence pales in comparison to the 25 years that
Sam Bankman-Fried
was ordered to serve in March for embezzlement of $8 billion (approximately Rs. 66,788 crore)
from patrons of the now-defunct
FTX trading platform.
Bankman-Fried is contesting his conviction and the severity of his punishment.

Nevertheless, the verdict marks a significant accomplishment for prosecutors following a
protracted investigation into Binance and Zhao, who is a billionaire and was residing
outside the jurisdiction of U.S. enforcement in the United Arab Emirates.

U.S. Attorney Tessa Gorman expressed her satisfaction with the court’s decision to reporters,
commenting, “This was an incredible day. Incarceration played a pivotal role in this matter,
and we are content with the outcome.”

Judge Jones, before announcing the sentencing, criticized Zhao for prioritizing
the expansion and financial success of Binance over adherence to U.S. regulations.

Zhao, 47, maintained his composure upon the delivery of his sentence. Attired in a dark navy
suit and tie, he was present in the courtroom along with his mother and other family members.
Zhao’s defense team had argued for probation instead of imprisonment.

Dennis Kelleher, who leads the financial reform advocacy organization Better Markets, remarked
via email that the day’s events essentially broadcast, “‘Crime pays,’ as Zhao is allowed to
retain his substantial fortune.”

‘I take full responsibility’

According to prosecutors, Binance operated on a “Wild West” approach, turning a blind eye to
disreputable parties, and failed to report in excess of 100,000 suspect dealings, some involving
sanctioned terrorist organisations like Hamas, al-Qaeda, and the Islamic State.

They also noted that the exchange facilitated the trade in materials depicting child sexual abuse
and was the recipient of extortionate ransomware funds.

Binance has agreed to a substantial penalty of $4.32 billion (around Rs. 36,065 crore), with
Zhao personally contributing $50 million (about Rs. 417 crore) to settle criminal charges and
an additional $50 million to the U.S. Commodity Futures Trading Commission.

Before the sentencing, Zhao addressed the court, saying, “I take full responsibility,”
recognizing the failure to execute a sufficient anti-money laundering policy and acknowledging
the gravity of his mistake.

The lax AML measures at Binance and other misconduct were initially brought to light by Reuters.

Zhao has committed to surrendering himself to serve his term, which will likely be at a facility
located near the Seattle-Tacoma International Airport.

“Not putting enough emphasis on compliance is short of deliberate wrongdoing.
It’s serious, but not as grave as specific intent that would call for a lengthy sentence,”
explained Robert Frenchman, an attorney specializing in corporate crime.

Yet, Frenchman continued, given the extent of Binance’s transgressions and the substantial fines
levied, Zhao should have foreseen a penalty beyond probation or house arrest.

‘Not a Villain’

Government lawyers emphasized to the judge the importance of a stern sentence to serve as a
deterrent to other potential offenders.

“We’re not equating Mr. Zhao to Sam Bankman-Fried or describing him as a villain,” said prosecutor
Kevin Mosley.

Nonetheless, Mosley pointed out that Zhao’s actions were more than a blunder or a minor regulatory
oversight.

Zhao relinquished his CEO position at Binance in November after conceding that he and the
exchange, founded in 2017, had deliberately dodged legal obligations under the Bank Secrecy Act.

In arguing for probation, Zhao’s defense insisted that other offenders who confessed to analogous
crimes, such as BitMEX founder Arthur Hayes, did not face incarceration.

Bartlett, Zhao’s defense attorney, admitted his client aimed to make a positive impact in the
world but faltered along the way. Meanwhile, Judge Jones held that the three-year penalty
suggested by the prosecutors was excessive, as they could not establish Zhao’s prior awareness
of the illicit activities.

“The government often asks for more than what they might expect to receive,” observed Frenchman.
“Advocating for a sentence well beyond the guidelines is exceptionally aggressive for someone
who has pleaded guilty.”

Additional cryptocurrency magnates are under the scrutiny of U.S. authorities as the 2022 crypto
market downturn unveiled a series of frauds and misconduct within the sector.

© Thomson Reuters 2024

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