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Binance founder sentenced to 4 months in prison for money laundering
SEATTLE — Changpeng Zhao, founder of the world’s largest cryptocurrency exchange, was sentenced Tuesday to four months in prison for looking the other way while criminals used the platform to transfer money linked to abuse child sexual abuse, drug trafficking and terrorism.
U.S. District Judge Richard A. Jones credited Binance’s founder and former CEO with taking responsibility for his wrongdoing. Zhao, 47, pleaded guilty in November to one count of failing to comply with an anti-money laundering program. Binance agreed to pay $4.3 billion to resolve related allegations by the U.S. government.
“I failed here,” Zhao told the court Tuesday. “I deeply regret my failure and I am sorry.”
But the judge said he was troubled by Zhao’s decision to ignore U.S. banking demands that would have slowed the company’s explosive growth. “It’s better to ask for forgiveness than for permission,” is what Zhao told his employees about the company’s approach to U.S. law, prosecutors said.
“No person, regardless of wealth, is immune from prosecution or above the laws of the United States,” Jones said.
The sentence, which included a previously agreed upon $50 million fine, was far less than the three years requested by the Justice Department, but defense attorneys had requested that Zhao not spend time in prison.
Zhao is the first person ever sentenced to prison for such violations of the Bank Secrecy Act, which requires U.S. financial institutions to know who their customers are, monitor transactions and file reports on suspicious activity. Prosecutors said no one had ever violated regulations to as serious an extent as Zhao’s. If he were not detained for this offense, no one would do so, rendering the law ineffective, they argued.
“It was not a mistake,” Justice Department attorney Kevin Mosley told Jones. “When Mr. Zhao violated the BSA, he was fully aware of the requirements. »
For example, Mosley said, Zhao ordered the company to conceal the location of customers in the United States to avoid having to comply with U.S. law.
The Justice Department sent a letter Monday urging Congress to toughen penalties in such cases. The violations may allow billions of dollars to flow illegally through the U.S. financial system, but the penalties under the government’s sentencing guidelines are “poorly calibrated to meet the seriousness of the crimes,” the statement said. letter.
Binance authorized more than 1.5 million virtual currency trades, totaling nearly $900 million, that violated U.S. sanctions, including those involving Hamas’s al-Qassam Brigades, al-Qaeda and ‘Iran, prosecutors said.
Defense attorneys Mark Bartlett and William Burck told the judge there was no evidence Zhao knew of any specific transaction that would have been prohibited by U.S. regulations or sanctions. Furthermore, they argued, the Binance transactions that violated U.S. sanctions were a tiny portion for a company that processed billions of dollars a year. And they noted that Zhao began making changes to improve Binance’s compliance before resigning.
In a letter to the court, Zhao wrote that there was “no excuse for my failure to establish necessary compliance controls at Binance.”
“I wish I could change this part of Binance’s history,” he added. “But under my leadership, Binance has now implemented the strictest anti-money laundering controls of any non-US exchange, and these controls have been in place since 2022.”
Zhao, his legal team and his family members left after Tuesday’s hearing without speaking to reporters. Zhao will report to serve his sentence on a date yet to be determined.
The cryptocurrency industry has been marred by scandals and market crashes.
Zhao was perhaps best known as the main rival of Sam Bankman-Friedthe founder of FTX, which was the second largest crypto exchange before its collapse in 2022. Bankman-Fried was found guilty last November of fraud for stealing at least $10 billion from customers and investors and sentenced to 25 years in prison.
Zhao and Bankman-Fried were originally friendly competitors in the industry, with Binance investing in FTX when Bankman-Fried launched the exchange in 2019. The relationship deteriorated, however, culminating in Zhao announcing that he sold all of its cryptocurrency investments in FTX in 2019. in early November 2022. FTX filed for bankruptcy a week later.
More recently, Nigeria has recently looked to try Binance and two of its executives on charges of money laundering and tax evasion. The U.S. Department of Justice on Tuesday charged early Bitcoin investor Roger Ver, known as “Bitcoin Jesus” for his avid promotion of the currency, with evading $50 million in taxes.
The judge described Zhao’s life story as remarkable: he grew up in rural China and his family immigrated to Canada after the Tiananmen Square massacre in 1989. He worked at a McDonald’s at the age of 14 years old and eventually fell in love with the tech industry while in college.
He founded Binance in 2017, motivated at least in part by a desire to help people in underdeveloped countries access reliable banking services. The company made him a crypto celebrity and multi-time billionaire; he announced in 2021 his intention to sell almost all of his fortune.
Zhao’s philanthropic interests include funding free online educational programs for children around the world and supporting small research labs to cure diseases.
Zhao’s lawyers have emphasized his willingness to leave the United Arab Emirates, where he and his family live, to plead guilty in the United States, even though the two countries do not have an extradition treaty.
They also argued that he would not be safe in prison. Because he is not a U.S. citizen, he cannot be placed in a minimum security facility. Given his status and wealth, as well as Binance’s cooperation with US law enforcement in some investigations, he could be a target for violence in a medium-security prison, they suggested.