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Binance Founder Changpeng Zhao Receives 4-Month Prison Term

In a high-profile case that has sent shockwaves through the cryptocurrency industry, Changpeng Zhao, widely known as CZ, the founder of Binance, the world’s largest cryptocurrency exchange, has been sentenced to four months in prison.

The sentencing, which took place on Tuesday in the Western District of Washington, was presided over by Judge Richard Jones, who handed down a lighter sentence than the three years petitioned by the prosecution.

What happened?

The legal saga unfolded in November when Zhao pleaded guilty to willfully violating anti-money-laundering rules, enabling hundreds of millions of dollars in transactions involving US-sanctioned entities, including Iran and Cuba, to pass through the Binance platform.

As part of the plea deal, Zhao was required to step down as Binance’s chief executive and accept a $150 million fine, while the company itself was slapped with a staggering $4.3 billion penalty.

The US Department of Justice, in a court filing prior to the sentencing, painted a damning picture of Zhao’s actions, asserting that his “willful violation of US law was no accident or oversight.”

Instead, they argued that Zhao had made a calculated “business decision that violating US law was the best way to attract users, build his company, and line his pockets.” Consequently, prosecutors had requested a 36-month prison sentence for Zhao, emphasizing the need to “deter others who are tempted to build fortunes and business empires by breaking US law.

In contrast, Zhao’s legal counsel advocated for probation, arguing that no defendant in a comparable case “has ever been sentenced to incarceration.”

Ultimately, Judge Jones was tasked with carefully weighing various factors beyond the underlying crime, including Zhao’s character, the likelihood of recidivism, and past infractions, to arrive at an appropriate sentence.

Ahead of the hearing, Zhao expressed remorse and accepted responsibility for his actions in a letter to the judge.

Words cannot explain how deeply I regret my choices that result in me being before the Court. Please accept my assurance that this will be my only encounter with the criminal justice system.

Changpeng Zhao

Zhao’s willingness to plead guilty and take responsibility is likely to have counted in his favor during sentencing, according to legal experts.

However, the evidence of Zhao’s flagrant disregard for the law weighed heavily on the judge’s decision. As Daniel Richman, a professor of law at Columbia University and former federal prosecutor, noted, “When you have somebody who flouted the law in such a sustained way, one could expect that respect for the law will loom large in the sentence the judge imposes.”

Zhao’s sentencing comes just a month after another high-profile crypto figurehead, Sam Bankman-Fried (SBF), founder of the bankrupt crypto exchange FTX, was sentenced to 25 years in prison. While the cases share some similarities, legal experts have pointed out critical differences.

As Daniel Silva, an attorney at Buchalter and former US prosecutor, explained:

CZ pleaded guilty to not following the law as required of a financial institution executive. SBF was different: He was improperly using customer funds, gained through fraudulent statements and material omissions of fact.

Daniel Silva

Zhao’s legal counsel made a thinly-veiled reference to this distinction in their presentence filing, stating:

Mr. Zhao has been convicted only of an AML [anti-money-laundering] compliance failure. He has not defrauded any investors, there has been no misappropriation of customer funds.

Zhao’s legal counsel

Their implication was clear: Zhao is no SBF.

Notably, Zhao will not be required to forfeit the immense wealth he has accrued as the founder of Binance as part of his sentence. Despite departing Binance in November, Zhao is reported to retain an estimated 86 percent stake in the exchange and continues to be worth tens of billions of dollars.

While some may criticize the sentence as too lenient, the US Department of Justice is likely to celebrate the conviction as a victory, after securing few landmark crypto convictions until last year.

As Silva noted:

Whether people criticize the sentence as too light, it sends a healthy message.

Daniel Silva

The aim, he explained, is to “deter the next crypto or financial institution CEO from thumbing their nose at anti-money-laundering regulations.”

The Zhao case serves as a stark reminder of the increasing scrutiny and regulatory oversight facing the cryptocurrency industry, particularly in the wake of high-profile scandals and failures.

As the industry continues to evolve and mature, compliance with anti-money-laundering rules and other regulations will be paramount for maintaining trust and credibility within the sector.

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