Binance founder Changpeng Zhao was sentenced to four months in prison for failing to establish adequate anti-money laundering protections. Zhao, once the head of the largest crypto exchange in the world, pleaded guilty in November 2023.
Judge Richard Jones says that Zhao prioritized “Binance’s
growth and profits over compliance with US laws and regulations.” While Jones
doesn’t think Zhao is likely to reoffend, the scale of the crime is notable.
Though Zhao is not as well-known as FTX fraudster Sam
Bankman-Fried, he is a more important figure in the crypto world. The
Chinese-Canadian entrepreneur founded Binance in 2017. Though he was required
to step down as CEO of the exchange as part of his plea agreement, he is still
the controlling shareholder of the company, which one person told Bloomberg was
“a massive shitcoin casino.” Binance listed many more tokens than competitors
such as Coinbase.
Prosecutors requested three years of prison time, double the
sentencing guideline of 18 months, because the “scope and ramifications of
Zhao’s misconduct were massive,” they wrote in their sentencing memo. They also
suggested that Zhao’s sentence should “reflect the significant harm to US
national security caused by his criminal acts.”
Binance allowed sanctions violations of more than $898
million, according to prosecutors, and “violated US law on an unprecedented
scale.” Zhao and other Binance executives didn’t comply with US laws, including
the Bank Secrecy Act (BSA), and didn’t adequately implement anti-money
laundering efforts. As a result, Iranian customers were able to transact at
least $1.1 million with US customers in violation of sanctions. Other
sanctioned countries, such as Cuba and Syria, were able to transact as well.
Zhao’s lawyers, in their own sentencing memo, said that Zhao
deserved no jail time, as “no defendant in a remotely similar BSA case has ever
been sentenced to incarceration.” Zhao traveled from his home in the UAE to
enter his guilty plea. He has remained in the US “away from his home, partner,
and young children for five and a half months,” his lawyers wrote. Besides,
Binance has taken action to fix their anti-money laundering procedures, they
wrote.
In the crypto world, Zhao has long been known as a cowboy
with a reputation for flouting US laws. In October 2022, Sam Bankman-Fried, CEO
of rival exchange FTX, tweeted (and deleted) that he was “excited to see [Zhao]
repping the industry in DC going forward! Uh, he is still allowed to go to DC,
right?” A week after that, Zhao tweeted he’d sell his holdings of FTX’s token
in response to a blockbuster story in CoinDesk. Since Binance had been an early
investor in FTX, that was a pretty sizable amount. “We won’t support people who
lobby against other industry players behind their backs,” Zhao said.
By publicly broadcasting his trade, Zhao began the run on
FTX that eventually revealed the fraud at the exchange. Bankman-Fried was
sentenced to 25 years in prison in March after being found guilty in a jury
trial of seven counts of conspiracy and fraud charges.
Zhao has already agreed to pay a fine of $50 million, a pittance compared to the estimated $33 billion fortune he made with Binance. He also agreed not to appeal any sentence up to 18 months.