Binance founder Changpeng Zhao gets four months in prison

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Binance founder Changpeng Zhao has been sentenced to spend four months in prison over failures that allowed cybercriminals and terrorist groups to trade freely on the world's largest cryptocurrency exchange.

U.S. District Judge Richard Jones in Seattle sentenced Canadian citizen Chow, 47, on Tuesday. The billionaire, wearing a dark suit with a light blue tie, arrived at court surrounded by six lawyers. His mother and sister watched his sentencing from the front row of the courtroom.

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The sentence was far short of the three years requested by prosecutors, who sought to make an example of Chow for an industry under intense scrutiny recovering from a series of high-profile scandals. This is the first time a CEO has been jailed for violating the Bank Secrecy Act, a charge that has been repeatedly used in cryptocurrency prosecutions in recent years.

In imposing the sentence, Jones said he hoped Chow would understand that despite “wealth, power and status,” no person is immune from prosecution or above the law. Chow, who did not visibly react to the sentencing, is expected to serve his four-month term at SeaTac, a federal detention center in Seattle. No date has been set for Chow to hand himself over to prison authorities, although he has expressed his desire to return to his family in the United Arab Emirates.

In a post on X after the ruling, Zhao said, “I will bide my time, wrap up this phase and focus on the next chapter of my life (education).” He added that he “will remain a passive (and holder) investor in cryptocurrencies.”

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The ruling concludes a years-long investigation by the Department of Justice that has cast a shadow over Binance and the man known as “CZ,” one of the industry’s most notorious figures. This case also comes on the back of the 25-year prison sentence handed down to Sam Bankman-Fried, the former cryptocurrency titan who stole billions of dollars from FTX clients.

Chow's lawyers said he could not serve time in a minimum-security facility, where most white-collar defendants end up, because he was not a U.S. citizen. This puts him at greater risk than other inmates, his lawyers argued as they pleaded with Jones to spare him prison time.

'Unprecedented'

Zhao's lawyers pointed to cases involving similar violations of banking law that have resulted in probation, such as the prosecution of executives of cryptocurrency platform BitMEX. But Jones said this particular crime was “unprecedented” because it involved millions of dollars and led to illicit actors, including terrorists and hackers, moving funds through Binance.

Zhao pleaded guilty in November to failing to implement a proper money laundering program at Binance, an exchange that started in Shanghai in 2017 and has grown to process trillions of dollars worth of transactions each year. Meanwhile, Binance pleaded guilty to anti-money laundering charges and penal code violations and agreed to pay $4.3 billion to resolve investigations into the Department of Justice and other US regulators.

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Zhao, who moved from China to Canada at the age of 12 and later settled in Dubai, has been banned from leaving the United States since then. Addressing the judge on Tuesday, he expressed remorse and said he traveled to Seattle last November to plead guilty rather than remain at his home in the United Arab Emirates, which does not have an extradition treaty with the United States.

“I left my family to come to the United States to take responsibility for my actions,” Zhao said. “Because responsibility is a core value of mine, and I live by it.” He then described life outside of cryptocurrencies, focusing on a charitable educational project.

Regulatory “excuse me.”

While federal sentencing guidelines called for a sentence of up to 18 months in prison, the US government called for a higher sentence. Federal prosecutor Kevin Mosley said the Binance founder's violations of US law were intentional and not an oversight.

“This was not a mistake,” Mosley said. “It was not an organizational amnesty.” But he also said that the punishment sought by the United States was proportionate. Mosley said the government is not suggesting that Chow's crimes are comparable to Bankman Fried's, nor is it “trying to kill the cryptocurrency industry.”

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He focused on a phrase that Chow had used years earlier: “It is better to ask for forgiveness than permission.”

Mosley said that by not asking for permission, Zhao made his company great and rose to fame, becoming a cryptocurrency celebrity while avoiding US compliance laws. Failure to maintain a proper money laundering program opened the door for illicit actors, including cryptocurrency mixers, hackers, and terrorist groups including Al Qaeda and ISIS, to trade Bitcoin on the platform.

Terrorist groups

In an example presented by the Financial Crimes Enforcement Network, or FinCEN, the Al-Qassam Brigades, the military wing of Hamas, used Bitcoin transactions to raise money for the Palestinian resistance. Hamas, which the United States classifies as a terrorist organization, killed more than 1,200 Israelis on October 7.

Failure to properly comply led to some clients trading with residents of Iran in violation of US sanctions. Between 2018 and 2022, Binance processed at least 1.1 million transactions that violated US sanctions, worth about $898 million, according to the government memo.

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While Chow resigned as CEO as part of a plea deal with the government, he continued to own the company and would “make significant profits,” Mosley said, arguing that a fine alone was not enough.

The judge said he was also troubled by the phrase “better to ask for forgiveness than permission,” noting the irony of Chow now coming before him to ask for forgiveness.

Mark Bartlett, Chow's attorney, said he couldn't think of anything else anyone could do to show remorse.

“Did he make mistakes? Absolutely, that's why we're here,” Bartlett said.

Some of it was financially motivated, but Zhao got into cryptocurrency to “change the world,” he said.

Although Chow's criminal case received widespread media coverage, he maintained his personal wealth. His wealth has swelled by US$25 billion as the cryptocurrency industry rebounded last year, and he currently ranks as the 42nd richest person in the world, according to the Bloomberg Billionaires Index.

bloomberg.com

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