(CN) — Changpeng Zhao, the founder and former chief executive of Binance, was sentenced to four months in prison after pleading guilty to letting the world's largest cryptocurrency exchange operate without the required U.S. anti-money laundering safeguards.
U.S. District Judge Richard Jones in Seattle handed down a sentence on Tuesday that was well short of the three years imprisonment that federal prosecutors had asked for.
"Binance — operating on a Wild West model that, as one compliance employee said, told criminals 'come to Binance we got cake for you' — quickly became the colossus of crypto exchanges," the government said in its request for a prison term beyond the federal sentencing guidelines. "As a result, Zhao is one of richest people in the world and a celebrity in the crypto industry. Zhao bet that he would not get caught, and that if he did, the consequences would not be as serious as the crime."
Zhao, 47, pleaded guilty this past November to one count of violating the Bank Secrecy Act by failing to implement an effective anti-money laundering program at Binance, which he founded in 2017. As part of his plea deal he also paid a $50 million fine.
Binance separately settled with the Justice Department and the U.S. Commodity Futures Trading Commission and has paid $4.3 billion in fines and disgorgement for violations of various laws and regulations pertaining to money laundering. Zhao himself paid $150 million in the settlement with the CFTC. There's still a pending lawsuit by the U.S. Securities and Exchange Commission against the crypto exchange.
In their bid for their client to avoid prison, Zhao's lawyers stressed that the billionaire Chinese-born citizen of Canada and United Arab Emirates transformed Binance into "an industry leader on compliance and collaboration with law enforcement."
"Mr. Zhao deeply regrets his offense, and he has shown exceptional acceptance of responsibility and remediation," according to his sentencing memorandum. "Mr. Zhao traveled to the United States voluntarily from a non-extradition country to plead guilty and resigned from his role as chief executive officer of the company. Since then, he has remained in the United States, away from his home and family for over five months."
Zhao, widely known as "CZ," had been living in the United Arab Emirates with his family before coming to Seattle to answer the Justice Department's criminal complaint.
According to the government, by failing to implement anti-money laundering safeguards, Zhao allowed Binance to become the go-to exchange for transactions in illegal funds, such as the in proceeds of ransomware attacks and darknet sales.
Between August 2017 and April 2022, federal prosecutors said, there were direct transfers of about $106 million in bitcoin to Binance.com wallets from Hydra, the world’s then-largest darknet marketplace used by criminals to facilitate the sale of illegal goods and services.
And from February 2018 to May 2019, Binance processed more than $275 million in deposits and more than $273 million in withdrawals from BestMixer — one of the largest cryptocurrency mixers in the world until it was shut down by Dutch authorities in May 2019. Cryptocurrency mixers or tumblers are services that can hide the origin of cryptocurrency funds by lumping them together with others.
In addition, Binance was used to evade U.S. restrictions on financial transactions with countries such as Iran and Syria and with regions of Ukraine that are occupied Russia.
"Zhao knew and understood that his decisions with respect to Binance’s AML program would likely have the result that Binance would facilitate these types of illicit transactions," the government said. "And, of course, the company has admitted that illicit actors used Binance.com in various ways including operating mixing services that obfuscated the source and ownership of cryptocurrency, transacting illicit proceeds from ransomware variants, and moving proceeds of darknet market transactions."
Follow @edpettersson
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
