Changpeng Zhao, founder of Binance, the world’s largest cryptocurrency exchange, has been sentenced to four months in prison.
Judge Richard Jones, who presided over the sentencing hearing in the Western District of Washington on Tuesday, handed down a lighter sentence than the three years petitioned by the prosecution.
Last November, Zhao—better known as CZ—pleaded guilty to willfully violating anti-money-laundering rules that enabled hundreds of millions of dollars in transactions involving US-sanctioned entities, including Iran and Cuba, to pass through the Binance platform. The plea deal required Zhao to step down as Binance chief executive and accept a $150 million fine, and for the company to pay a $4.3 billion penalty.
“Zhao’s willful violation of US law was no accident or oversight,” the US Department of Justice wrote in a court filing ahead of the sentencing. “He made a business decision that violating US law was the best way to attract users, build his company, and line his pockets.”
In the filing, prosecutors requested that Zhao receive a 36-month prison sentence, pointing to the need to “deter others who are tempted to build fortunes and business empires by breaking US law.” Zhao’s legal counsel asked for probation, on the grounds that no defendant in a comparable case “has ever been sentenced to incarceration.”
In coming to an appropriate sentence for Zhao, the judge was required to “look past the guidelines” and factor in context beyond the facts of the underlying crime, says Daniel Richman, a professor of law at Columbia University and former federal prosecutor. That includes the character of the defendant, the likelihood of recidivism, past infractions, and other factors.
In a letter to the judge in advance of the hearing, Zhao apologized for his conduct and accepted responsibility for the failure to establish an effective compliance program at Binance. “Words cannot explain how deeply I regret my choices that result in me being before the Court,” he wrote. “Please accept my assurance that this will be my only encounter with the criminal justice system.”
Zhao’s willingness to “plead guilty and take responsibility” will have counted in his favor, says Richman, but evidence of his flagrant disregard for the law will have weighed heavily on the judge. “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,” says Richman.
Zhao is the second crypto figurehead to face criminal sentencing in the US in as many months. On March 28, Sam Bankman-Fried, or SBF, founder of bankrupt crypto exchange FTX, was sentenced to 25 years in prison. Before their respective falls from grace, the pair vied for control of the exchange market and reportedly sparred frequently. But the similarities between the cases end there.
“It’s an easy comparison, but an imperfect one,” says Daniel Silva, an attorney at law firm Buchalter and former US prosecutor. “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.”
In their own presentence filing, Zhao’s counsel made a thinly-veiled reference to the distinction. “Mr. Zhao has been convicted only of an AML [anti-money-laundering] compliance failure,” they wrote. “He has not defrauded any investors, there has been no misappropriation of customer funds.” Their client, they appeared to be saying, is no SBF.
Zhao will not be required to forfeit the wealth he has accrued as founder of Binance as part of his sentence. Although he departed 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.
The DOJ, which until last year had secured few landmark crypto convictions, will nonetheless celebrate the conviction. “Whether people criticize the sentence as too light, it sends a healthy message,” says Silva. The aim is to “deter the next crypto or financial institution CEO from thumbing their nose at anti-money-laundering regulations.”