As reported by CNBC, on April 30th the founder of Binance, Changpeng Zhao, was sentenced to four months in prison after pleading guilty to charges of enabling money laundering at his cryptocurrency exchange. Despite the significant sentencing guidelines of 12 to 18 months, the sentence handed down to Zhao was significantly less than the three years that federal prosecutors had sought. The defense had requested five months of probation.
Zhao was accused of willfully failing to implement an effective anti-money laundering program as required by the Bank Secrecy Act and of allowing Binance to process transactions involving proceeds of unlawful activity, including between Americans and individuals in sanctions jurisdictions.
According to a Reuters report, U.S. District Judge Richard Jones told Zhao, "You had the wherewithal, the finance capabilities, and the people power to make sure that every single regulation had to be complied with, and so you failed at that opportunity."
Zhao reportedly said earlier Tuesday in court, "I believe the first step of taking responsibility is to fully recognize the mistakes. Here I failed to implement an adequate anti-money laundering program... I realize now the seriousness of that mistake." He also told the judge before receiving his sentence, "I’m sorry," per Reuters.
In November, Zhao struck a deal with the U.S. government to resolve a multiyear investigation into Binance, the world's largest cryptocurrency exchange, and stepped down as the company's CEO. However, he is widely reported to have an estimated 90% stake in Binance. The U.S. ordered Binance to pay $4.3 billion in fines and forfeiture, and Zhao agreed to pay a $50 million fine.
On separate occasions, Binance has been sued by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission over the alleged mishandling of customer assets and the operation of an illegal, unregistered exchange in the U.S. The action against Binance and its founder was a cooperative effort by the Department of Justice, the CFTC, and the Treasury Department, though the SEC was distinctly absent.
Prosecutors claim that Zhao violated U.S. law on an "unprecedented scale" and that he had a "deliberate disregard" for Binance's legal responsibilities. According to a memorandum on April 23rd, prosecutors said that under Zhao's authority, Binance operated on a "Wild West" model. "Zhao bet that he would not get caught, and that if he did, the consequences would not be as serious as the crime," the memorandum stated. "But Zhao was caught, and now the Court will decide what price Zhao should pay for his crimes."
A Binance spokesperson said in a statement to CNBC that the crypto exchange is "proud of the culture of compliance, security, and transparency we have created over the past several years, and we look forward to building on that culture as we continue to evolve." The spokesperson said the company has made "considerable compliance enhancements," including with regards to anti-money laundering detection and "hiring key compliance personnel."
Per CNBC, a lawyer for Zhao did not immediately respond to CNBC's request for comment.
Former crypto rival Sam Bankman-Fried, the founder and ex-CEO of FTX, received a much harsher sentence than Zhao. Bankman-Fried was sentenced to 25 years in prison for crimes connected to the operation of his crypto exchange. In contrast to Zhao and the charges brought against Binance, Bankman-Fried's failed exchange was met with allegations of fraud and misuse of customer funds.
Braden Perry, a former senior trial lawyer for the CFTC, stated that compliance failures, while serious, might be seen as a failure of oversight rather than active malfeasance. "CZ's case seems to focus on regulatory and compliance failures, while SBF's case hinges on direct financial misconduct and deception," continued Perry.