Binance founder Changpeng “CZ” Zhao sat up straight in his chair inside a Seattle courtroom Tuesday morning, his hands folded on the defense table, as a federal prosecutor made the case to put him in prison for three years — twice the top end of the range for his crime under federal sentencing guidelines.
“We are not suggesting that Mr. Zhao is Sam Bankman-Fried and he is a monster, and we are not trying to kill the cryptocurrency industry,” said prosecutor Kevin Mosely, deputy chief of the U.S. Justice Department’s Bank Integrity Unit, referring to the separate case of the FTX founder, who was sentenced to 25 years in prison.
However, he added, the sentence “needs to reflect the seriousness of the offense.”
The specific offense to which Zhao pleaded guilty in November was failing to establish an anti-money laundering program as required by law. Prosecutors said the lack of controls allowed the world’s largest cryptocurrency exchange to be used to fund terrorists, child abusers, and cybercriminals, among others.
“I fully recognize the seriousness of the mistakes I made,” Zhao, 47, said in court Tuesday morning. “I learned an important lesson here that I will take with me.”
Zhao’s straightforward acknowledgment of guilt was one of the mitigating factors cited by U.S. District Court Judge Richard A. Jones in sentencing him to four months in prison — a fraction of the prison term sought by prosecutors.
Judge Jones said Zhao had shown an “exceptional acceptance of responsibility.” He also praised the business success Zhao found after growing up in poverty in China, his philanthropic initiatives long before he was charged by prosecutors, and his dedication to helping others.
The judge said he closely read the 160 letters submitted to the court in support of Zhao prior to sentencing, to the point that the binding started to fall apart.
On the other hand, Judge Jones said he was “deeply troubled” by the evidence that Zhao had openly flouted U.S. law by communicating internally at Binance that it was “better to ask for forgiveness rather than permission.”
Judge Jones told Zhao that he had “a responsibility to comply with U.S. regulations — not some, but all.” The judge said Zhao had failed at that responsibility, enabling billions in Bitcoin to be funneled into the dark web.
As the judge spoke, Zhao nodded his head, acknowledging both the positive and negative statements from the bench. In the front row of the courtroom were family members including his mother and sister.
Zhao was fined $50 million as part of his November plea deal, and stepped down as CEO of Binance at the time.
Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.
Binance is no longer a baby. It is…
— CZ 🔶 BNB (@cz_binance) November 21, 2023
However, he has retained a stake in the company, and still has an estimated personal net worth of $33 billion. He has been traveling throughout the country in advance of his sentencing, and launched a new initiative called Giggle Academy to bring free, high-quality education to underprivileged youth around the world.
Zhao’s defense attorneys, including William Burck of Quinn Emanuel and Mark Bartlett of Davis Wright Tremaine, had asked the judge to sentence him to probation, with no incarceration.
They cited factors including his willingness to return from the United Arab Emirates to the United States to face the charges, despite a lack of an extradition protocol. They pointed out that he could have easily remained in Dubai indefinitely, albeit as a fugitive under U.S. law.
A probation report recommended that Zhao serve five months in prison.
In filings prior to the sentencing, prosecutors said Zhao’s willful avoidance of the law created a “Wild West” environment that gave criminals free rein on Binance, and enriched Zhao in the process.
“The sentence in this case will not just send a message to Zhao but also to the world,” they wrote. “Zhao reaped vast rewards for his violation of U.S. law, and the price of that violation must be significant to effectively punish Zhao for his criminal acts and to deter others who are tempted to build fortunes and business empires by breaking U.S. law.”
Burck, one of Zhao’s defense attorneys, argued that handing down an unusually long prison sentence, after he cooperated in returning to the U.S and entering into a plea deal, would actually discourage future defendants in similar cases from cooperating in the same way — undermining future prosecutions.
The lighter-than-expected sentence reverberated through the cryptocurrency world, generating a backlash from groups concerned about the message it could send to others intent on evading the law.
The independent nonprofit Better Markets criticized prosecutors for agreeing to a plea deal in which Zhao admitted to just one charge. The four-month sentence is “an egregious miscarriage of justice and sends exactly the wrong message to criminals worldwide,” said Dennis Kelleher, co-founder and CEO of the group, in a statement.
U.S. Attorney Tessa Gorman, addressing reporters on the courthouse steps after the sentencing, disputed any contention that the four-month sentence was a victory for Zhao or the crypto community.
“Anyone who’s been convicted of a federal crime that caused significant damage throughout a global community shouldn’t call that a victory,” Gorman said. “This is a federal criminal conviction both for a corporation and for a CEO. Those are big, big consequences, and I think a victory for the Department of Justice.”
Binance previously agreed to pay $4.3 billion in penalties and forfeitures under its prior plea deal, directed by Zhao. The company was accused of violations related to the Bank Secrecy Act, failure to register as a money transmitting business, and other charges.
Prosecutors at the time called it one of the largest fines ever against a financial institution, and the first time the DOJ had reached a corporate resolution with a cryptocurrency exchange.
The case was prosecuted in Seattle in part because the U.S. Attorney’s Office for the Western District of Washington in Seattle has a history of pursuing cyber crimes, including other crypto cases.
