Deborah Bloom and Jonathan Stempel
SEATTLE (Reuters) – Changpeng Zhao, the former CEO of Binance, was sentenced on Tuesday to four months in prison after pleading guilty to violating U.S. 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,” became the second major crypto boss to be sentenced to prison.
The sentence handed down by U.S. District Judge Richard Jones in Seattle was significantly shorter than the three years sought by prosecutors and below the maximum year and a half recommended by federal guidelines.
It was also much lighter than the 25 years behind bars that Sam Bankman-Fried received in March for stealing $8 billion from clients of his now-bankrupt exchange FTX. Bankman-Fried is appealing his conviction and sentence.
Still, prosecutors welcomed the results of a years-long investigation into Binance and Zhao, a billionaire who lived beyond U.S. reach in the United Arab Emirates.
“It was an epic day,” U.S. Attorney Tessa Gorman told reporters outside the courthouse. “In this case, a prison sentence was critical and we are pleased with the outcome.”
Before handing down his sentence, Jones accused Zhao of making Binance’s growth and profitability a higher priority than complying with US laws.
“You had the means, the financial capacity and the people power to enforce every rule, and therefore you did not take advantage of this opportunity,” he said.
Zhao, 47, did not react after hearing the verdict.
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He wore a dark blue suit and tie in the courtroom, with his mother and several other family members present. Defense lawyers asked for probation.
“Crime pays is the message sent today,” Dennis Kelleher, head of 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 operated 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 supported the sale of child sexual abuse material and received most of its revenue from ransomware.
Binance agreed to pay a $4.32 billion fine, and Zhao paid a $50 million criminal fine plus $50 million to the U.S. Commodity Futures Trading Commission.
“I’m very sorry,” Zhao told the judge before sentencing.
“I believe the first step to accepting responsibility is to fully admit mistakes. Here I failed to implement an adequate anti-money laundering program… I now understand the seriousness of this mistake.”
Much of Binance’s misconduct, including lax money laundering controls, was first reported by Reuters.
Zhao will voluntarily surrender and serve his sentence, most likely at a detention center near Seattle-Tacoma International Airport.
“Failure to comply is several shades below criminal intent. “It’s bad, but it falls below the normal specific intent requirement” that could justify years in prison, said Robert Frenchman, a lawyer who specializes in white-collar crimes.
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But given the scale of Binance’s violations and the huge fines, he should not have expected probation or home detention, French added.
NOT A MONSTER
Prosecutors told the judge that a harsh sentence would send a clear message to other potential 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. It wasn’t a regulatory ‘oops’.”
Zhao stepped down as head of Binance in November after he and the exchange he founded in 2017 admitted to evading money laundering requirements under the Bank Secrecy Act.
In seeking probation, defense lawyers said others who admitted similar offenses, including BitMEX founder Arthur Hayes, were not jailed.
Zhao “wanted to make a difference” but made mistakes, said attorney Mark Bartlett.
Jones said the three-year sentence prosecutors requested was inappropriate because it did not prove Zhao had prior knowledge of the illegal activity.
“The government always asks for more than it thinks it will get,” French said. “It is unusually aggressive for a lawyer to go beyond the guidelines.”
Several other crypto tycoons have also found themselves in the crosshairs of US authorities after the 2022 cryptocurrency price collapse exposed fraud and misconduct throughout the industry.
(Writing and additional reporting by Michelle Price; Additional reporting by Chris Prentice; Editing by Alistair Bell, Will Dunham, Deepa Babington and Daniel Wallis)