Changpeng Zhao, the former CEO of Binance, was sentenced on Tuesday to four months in prison after pleading guilty to violating US anti-money laundering laws at the world’s largest cryptocurrency exchange.

Once considered the most powerful figure in the crypto industry, Zhao, known as “CZ”, is the second major crypto boss to be sentenced to prison.

The sentence imposed by U.S. District Judge Richard Jones in Seattle was significantly shorter than the three years sought by prosecutors and below the maximum 1-1/2 years recommended under federal guidelines.

It was also much lighter than the 25 years behind bars Sam Bankman-Fried received in March for stealing $8 billion (roughly Rs. 66,788 crore) from clients of his now-bankrupt FTX exchange. Bankman-Fried appealed his conviction and sentence.

Still, prosecutors welcomed the outcome of a years-long investigation into Binance and Zhao, a billionaire who lived beyond US reach in the United Arab Emirates.

“It’s been an epic day,” U.S. Attorney Tessa Gorman told reporters outside the courthouse. “Incarceration was critical in this case and we are pleased with the outcome.”

Before handing down the sentence, Jones accused Zhao of putting Binance’s growth and profitability as a higher priority than complying with US law.

“You had the means, the financial ability and the people power to make sure that every single regulation had to be followed, and that’s why you failed in that opportunity,” he said.

Zhao, 47, was visibly unresponsive when he heard his sentence.

He wore a navy blue suit and tie to the courtroom, with his mother and several other family members present. Defense attorneys asked for probation.

“‘Crime pays’ is the message sent today,” Dennis Kelleher, head of the financial reform advocacy group Better Markets, wrote in an email, noting that Zhao would still be able to keep his vast wealth.

‘I’m sorry’

Prosecutors said Binance used a “Wild West” model that welcomed criminals and failed to report more than 100,000 suspicious transactions with certain terrorist groups, including Hamas, al-Qaeda and the Islamic State.

They also said Zhao’s exchange supports the sale of child sexual abuse material and receives much of its revenue from ransomware.

Binance agreed to a fine of $4.32 billion (roughly Rs. 36,065 crore), and Zhao paid a $50 million (roughly Rs. 417 crore) criminal fine plus $50 million to the US Commodity Futures Trading Commission.

“I’m sorry,” Zhao told the judge before he was sentenced.

“I believe the first step to taking responsibility is to fully own up to mistakes. I failed to implement an adequate anti-money laundering program here…I now realize the seriousness of this mistake.”

Much of Binance’s misconduct, including lax controls on money laundering, was first reported by Reuters.

Zhao will turn himself in voluntarily to serve his sentence, most likely at a detention center near Seattle-Tacoma International Airport.

“Not prioritizing compliance is several shades below criminal intent. It’s bad, but it falls short of the usual requirement of specific intent,” which would warrant a sentence of years, said Robert Frenchman, an attorney who specializes in white-collar crime.

But given the scale of Binance’s violations and the huge fines imposed, he shouldn’t expect probation or house arrest, the Frenchman added.

It’s not a monster

Prosecutors told the judge that a harsh sentence would send a clear signal to other future criminals.

“We are not suggesting that Mr. Zhao is Sam Bankman-Fried or that he is a monster,” said prosecutor Kevin Moseley.

But Zhao’s behavior, he said, “was not a mistake. It wasn’t a regulatory “oops”.

Zhao stepped down as head of Binance in November when he and the exchange he founded in 2017 admitted to evading money laundering requirements under the Bank Secrecy Act.

In seeking probation, defense attorneys said others who have admitted to similar wrongdoing, including BitMEX founder Arthur Hayes, have not been jailed.

Zhao “wanted to change the world” but made mistakes, lawyer Mark Bartlett said.

Jones said the three-year sentence sought by prosecutors was inappropriate because they did not show Zhao had prior knowledge of illegal activity.

“It is always the case that the government wants more than it thinks it will get,” said the Frenchman. “Going this far above the guidelines for a petitioner is unusually aggressive.”

Several other crypto tycoons are also under the crosshairs of US authorities after the 2022 crypto price crash exposed fraud and abuse in the industry.

© Thomson Reuters 2024

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