Binance founder Changpeng Zhao sentenced to four months in prison

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Binance founder Changpeng Zhao was sentenced to four months in prison for failing to establish adequate anti-money laundering protections. Zhao, once the head of the largest crypto exchange in the world, pleaded guilty in November 2023.

Judge Richard Jones says that Zhao prioritized "Binance's growth and profits over compliance with US laws and regulations." While Jones doesn't think Zhao is likely to reoffend, the scale of the crime is notable.

Binance "violated US law on an unprecedented scale"

Though Zhao is not as well-known as FTX fraudster Sam Bankman-Fried, he is a more important figure in the crypto world. The Chinese-Canadian entrepreneur founded Binance in 2017. Though he was required to step down as CEO of the exchange as part of his plea agreement, he is still the controlling shareholder of the company, which one person told Bloomberg was "a massive shitcoin casino." Binance listed many more tokens than competitors such as Coinbase.

Prosecutors requested three years of prison time, double the sentencing guideline of 18 months, because the "scope and ramifications of Zhao's misconduct were massive," they wrote in their sentencing memo. They also suggested that Zhao's sentence should "reflect the significant harm to US national security caused by his criminal acts."

Binance allowed sanctions violations of more than $898 million, according to prosecutors, and "violated US law on an unprecedented scale." Zhao and other Binance executives didn't comply with US laws, including the Bank Secrecy Act (BSA), and didn't adequately implement anti-money laundering efforts. As a result, Iranian customers were able to transact at least $1.1 million with US customers in violation of sanctions. Other sanctioned countries, such as Cuba and Syria, were able to transact as well.

Zhao's lawyers, in their own sentencing memo, said that Zhao deserved no jail time, as "no defendant in a remotely similar BSA case has ever been sentenced to incarceration." Zhao traveled from his home in the UAE to enter his guilty plea. He has remained in the US "away from his home, partner, and young children for five and a half months," his lawyers wrote. Besides, Binance has taken action to fix their anti-money laundering procedures, they wrote.

In the crypto world, Zhao has long been known as a cowboy with a reputation for flouting US laws. In October 2022, Sam Bankman-Fried, CEO of rival exchange FTX, tweeted (and deleted) that he was "excited to see [Zhao] repping the industry in DC going forward! uh, he is still allowed to go to DC, right?" A week after that, Zhao tweeted he'd sell his holdings of FTX's token in response to a blockbuster story in CoinDesk. Since Binance had been an early investor in FTX, that was a pretty sizable amount. "We won't support people who lobby against other industry players behind their backs," Zhao said.

By publicly broadcasting his trade, Zhao began the run on FTX that eventually revealed the fraud at the exchange. Bankman-Fried was sentenced to 25 years in prison in March after being found guilty in a jury trial of seven counts of conspiracy and fraud charges.

Zhao has already agreed to pay a fine of $50 million, a pittance compared to the estimated $33 billion fortune he made with Binance. He also agreed not to appeal any sentence up to 18 months.