Changpeng Zhao, the previous CEO of Binance, was sentenced on Tuesday to four months in prison for violating U.S. laws on money laundering at the world’s largest cryptocurrency exchange.
Once seen as a leading figure in the crypto industry, Zhao, known as “CZ,” becomes the second major cryptocurrency executive to face imprisonment.
The sentence handed down by U.S. District Judge Richard Jones in Seattle was much shorter than the three years sought by prosecutors and below the maximum recommended under federal guidelines.
In contrast to Sam Bankman-Fried’s 25-year sentence in March for defrauding customers of his now-defunct FTX exchange, Zhao’s penalty is significantly lighter. Bankman-Fried is currently appealing his conviction and sentence.
Nevertheless, prosecutors hailed the outcome of the lengthy investigation into Binance and Zhao, who had been residing beyond U.S. jurisdiction in the United Arab Emirates.
“This was a significant development,” stated U.S. Attorney Tessa Gorman. “Incarceration was essential in this case, and we are satisfied with the outcome.”
Before delivering the sentence, Judge Jones criticized Zhao for prioritizing Binance’s growth and profitability over compliance with U.S. laws.
“You had the resources, financial capabilities, and personnel to ensure compliance with every regulation, but you failed in that regard,” he remarked.
Zhao, 47, showed no visible reaction upon hearing his sentence. He appeared in court wearing a navy blue suit and tie, accompanied by his mother and other family members. Defense attorneys had requested probation.
Dennis Kelleher, head of the financial reform advocacy group Better Markets, criticized the leniency of the sentence, highlighting that Zhao would retain his substantial wealth.
Prosecutors alleged that Binance operated a “Wild West” model that attracted criminals and failed to report over 100,000 suspicious transactions involving designated terrorist groups like Hamas, al-Qaeda, and the Islamic State.
They also accused Zhao’s exchange of facilitating the sale of child sexual abuse materials and receiving a significant portion of ransomware proceeds. Binance agreed to a $4.32 billion penalty, with Zhao paying a $50 million criminal fine plus an additional $50 million to the U.S. Commodity Futures Trading Commission.
“I’m sorry,” Zhao told the judge before receiving his sentence. “I understand that the first step in taking responsibility is acknowledging one’s mistakes. I failed to implement an adequate anti-money laundering program, and I now understand the seriousness of that error.”
Zhao will voluntarily surrender to serve his sentence, likely at a detention center near Seattle-Tacoma International Airport.
Robert Frenchman, a white-collar crime lawyer, suggested that Zhao’s failure to prioritize compliance fell short of criminal intent but warranted punishment given Binance’s violations and the hefty fines imposed.
Prosecutors emphasized that a tough sentence for Zhao would serve as a warning to potential wrongdoers.
“We are not suggesting that Mr. Zhao is comparable to Sam Bankman-Fried or is a monster,” stated prosecutor Kevin Mosley. “But his actions were not mere mistakes. This was not a regulatory oversight.”
Zhao resigned as Binance’s CEO in November after admitting to evading money-laundering requirements under the Bank Secrecy Act. Defense attorneys argued for probation, citing the lenient treatment of other executives who admitted similar wrongdoing, such as BitMEX founder Arthur Hayes.
“Zhao aspired to make a positive impact on the world but made errors,” said defense lawyer Mark Bartlett.
Judge Jones deemed the three-year sentence sought by prosecutors inappropriate, as they failed to demonstrate that Zhao knew in advance about illegal activities.
The sentencing of Zhao comes amidst heightened scrutiny of cryptocurrency industry leaders following revelations of fraud and misconduct during the 2022 crypto market downturn.
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