Changpeng Zhao, former head of Binance was sentenced to four months
- Zhao appeared in a Seattle courtroom with his mother, son and sister in tow
- Prosecutors had wanted three years in prison, and the defense wanted no jail
- With this case wrapped, a long era of crypto fraud has come (mostly) to a close
Former Binance CEO Changpeng Zhao was sentenced to four months in prison after pleading guilty in November 2023 to an anti-money laundering charge.
Zhao, who went by the nickname CZ, has also satisfied the requirement of him to pay $50 million in fines, U.S. District Judge Richard Jones said in court Tuesday. The judge also won’t impose five months of probation as was recommended by the probation officer.
The 47-year-old admitted to violating the Bank Secrecy Act by willfully failing to set up an effective anti-money laundering system at Binance, the cryptocurrency exchange he founded and ran as CEO from July 2017 to November 2023.
Binance also pleaded guilty to similar charges from the US Department of Justice in November 2023 and was forced to pay $4.3 billion in fines and restitution for failing to register as a money transmitting business, Forbes reported.
Zhao’s four-month sentence is ironic, given that ‘4’ is one of his most well known catchphrases. It’s a shorthand for ignore FUD (fear, uncertainty and doubt) when it comes to negative news about Binance. Crypto journalists were quick to point this out, leading to humorous posts of Zhao holding up his signature four fingers.
Zhao, a Chinese-born Canadian citizen, arrived at a federal courtroom in Seattle Tuesday, where the judge handed down the four-month sentence. Zhao’s mother, son, nephew and sister were present at the hearing, according to reports.
Former Binance CEO Changpeng Zhao arrives at federal court in Seattle, Washington, on April 30, 2024 to be sentenced for his money laundering violation
Zhao arrives Tuesday in a blue suit with a light blue tie holding a folder
Zhao is seen outside the courtroom on Tuesday morning preparing for the sentencing hearing
One post on X showing Zhao with four fingers up
The judge remarked that he doesn’t think Zhao is likely to reoffend, adding that he read all 161 letters sent to the court asking for leniency for Zhao. The judge even complimented Zhao’s ‘hard work and vision,’ saying the Binance founder risked his ‘entire net worth’ to make the company succeed.
The judge didn’t just praise Zhao though. He reference a report submitted to the court that showed billions of dollars worth of bitcoin were ‘directly sent’ to darknet markets.
‘I was deeply troubled in the materials submitted by the parties that include reference to your statement…”it was better to ask forgiveness than permission,”‘ the judge said.
Seattle federal prosecutors had asked for three years behind bars, while the defense was looking for five months of probation.
During the sentencing hearing Tuesday, prosecutors argued that Zhao knew of the illegal activity going on at Binance, but judge disagreed, saying: ‘There’s no evidence that the defendant was ever informed.’
Therefore, the Justice Department’s push for a sentencing enhancement was denied after a back and forth between US attorneys and the judge. The judge did find that Zhao accepted responsibility for the crimes he was charged with.
Even still, one of the government attorneys said Tuesday that Zhao’s efforts to break the law were ‘integral’ to tap the U.S. financial system.
‘If Mr. Zhao does not face incarceration after deliberately and willfully planning to violate U.S. law to build the largest crypto exchange in the world and get rich in the process…then no one will face incarceration and the [Bank Secrecy Act] will for intents and purposes be a dead letter,’ the prosecutor also said prior to the sentence being handed down.
Zhao was seen frowning, raising his eyebrows and furrowing his forehead during the prosecution’s opening statement, according to reports from inside the courtroom.
When it was his turn to speak, Zhao began by saying ‘I’m sorry’ and that he wants to take responsibility for his ‘mistakes.’ He admitted he failed to set up anti-money laundering protections and ‘know your customer’ requirements at Binance, but has since rectified that.
‘Know your customer’ guidelines are required by U.S. law and are used by financial services companies to verify their customers are who they say they are, thereby cutting down on illegal activity.
The judge said in response that everything he sees about Zhao’s history and characteristics are ‘of a mitigating nature and a positive nature.’
Though, the judge also said that Zhao’s failure to comply with U.S. regulations on money laundering were ‘aggravating’ and had an effect on drug trafficking and terrorism.
The defense countered the prosecution’s desire for a longer sentence by reminding the judge that Zhao surrendered himself to authorities in November 2023 and didn’t fight extradition from where he lives in Dubai.
Zhao’s attorneys added that he directed Binance to cooperate with the criminal investigation, which they said should count in his favor.
Zhao departs the Seattle court house after being sentenced to four months in prison. It isn’t clear when he’ll be remanded into custody
Zhao faced a possible ten year sentence based on sentencing guidelines for violating the Bank Secrecy Act
Zhao again pictured arriving at court on Tuesday
Zhao surrendered to U.S. authorities in November 2023, just weeks after Sam Bankman-Fried, a former peer of his in the crypto industry, was sentenced to 25 years for his fraudulent crypto exchange FTX
Zhao pictured with former FTX boss Sam Bankman-Fried. Binance owned a large stake of FTX before selling it for $2.1 billion in 2021
The defense did reveal that Zhao still has ownership in Binance, adding the caveat that he no longer is in control.
Perhaps the strongest argument the defense made for leniency in Tuesday’s hearing was bringing up the case of Arthur Hayes.
Hayes founded crypto platform BitMEX and pled guilty to violating the Bank Secrecy Act – the same charge Zhao faced – and was sentenced to six months home detention, two years probation and ordered to pay a $10 million fine.
In a scathing sentencing letter last Tuesday, the Justice Department said much the same as its attorneys did in court, arguing Zhao targeted high-value customers in the U.S. by letting them do whatever they wanted on the platform. Even if it broke the law.
‘Zhao’s willful violation of U.S. law was no accident or oversight. He made a business decision that violating U.S. law was the best way to attract users, build his company, and line his pockets,’ prosecutors wrote.
And line his pockets, he did. Zhao is worth a staggering $42.9 billion through his holdings in Binance and Binance.US, making him the 29th richest person in the world, according to the Bloomberg Billionaire’s Index.
It’s a far cry from his burger flipping days at McDonald’s in the early 1990s when he was a teenager living in Canada.
With the successful conviction and imprisonment of Zhao, the US government is essentially saying much of his billions amount to ill-gotten gains.
Prosecutors have said Zhao allowed ‘suspicious and criminal users’ to use Binance and did not report dubious transactions to the US as required by the Bank Secrecy Act.
Zhao attends ‘CZ meets Italy’ event at Palazzo Brancaccio on May 10, 2022 in Rome, Italy
Zhao poses with his current partner Yi He, who is also a Binance cofounder
‘Zhao knew that his decision not to implement an effective AML program would result in Binance facilitating transactions between U.S. users and users in Iran and other sanctioned countries and regions in violation of U.S. law,’ prosecutors wrote in last week’s filing with the court.
Binance caused $898 million worth of sanctions violations by processing illegal transactions involving people residing in Iran, the government added.
The crypto founder’s defense responded by filing more than 160 letters of support from Zhao’s loved ones, friends and colleagues.
Dozens of current and former Binance employees pleaded with Judge Jones to give Zhao a lenient sentence. Crypto entrepreneurs and investors have also shown their support for Zhao, demonstrating that he remains a powerful figure in the world of digital assets.
Zhao’s private life was famously murky but the letters revealed that he has five kids.
He has two adult children with his wife and former partner Weiqing ‘Winnie’ Yang, and three young children with Binance co-founder and current partner Yi He.
Zhao’s wife Yang said he always made time for his children when they were adolescents, flying to Tokyo to help with their issues in school and frequently going camping with his son in the Japanese countryside for Boy Scout trips.
The William Kenzo Nakamura U.S. Courthouse where Zhao was sentenced Tuesday
Pictured: Richard Teng, who has taken over as CEO of Binance since Zhao stepped down in November 2023
Yi He, Zhao’s current partner, said he lives a frugal lifestyle and doesn’t enjoy flashy things in her letter of support to the court
Yi He, who Zhao is with now, said in her letter that their children are ‘very close’ with their father and have missed him immensely since he’s been gone for nearly six months.
Yi He also wrote that Zhao isn’t obsessed with material goods and is quite happy with a more frugal lifestyle.
‘He knows nothing about the jewelry, luxury goods, luxury cars, and art auctions that rich people are passionate about,’ He wrote, adding that Zhao drives a Toyota minivan.
This is very similar to the defense Sam Bankman-Fried’s lawyers trotted out when the FTX founder was being tried on fraud charges in October 2023.
His team was always quick to say the scruffy-haired crypto kid wore T-shirts, shorts, and drove a Toyota Corolla.
Bankman-Fried was sentenced to 25 years in prison in March 2023 and ordered to forfeit $11 billion after he was convicted of stealing billions from FTX customers.
The prosecution in Zhao’s case were quick to distinguish the Binance founder from Bankman-Fried during the sentencing hearing, even if there are similarities here and there.
‘We are not suggesting that Mr. Zhao is Sam Bankman-Fried or that he is a monster,’ one of the prosecutors said.
Yi He and Zhao. They have two young children together
Zhao (center) showing off his Binance logo tattoo on his arm
Zhao, even though he was ironically nailed on money laundering just like Bankman-Fried was, played a big role in the downfall of FTX. When FTX was having its so-called liquidity crisis amid a rush of withdrawals in November 2022, Zhao said he would buy the exchange.
A day later, he backed out, strategically wiping out his biggest competitor in an instant.
When Zhao was charged by the Justice Department last November, there was speculation that he might not surrender himself since he is a citizen of United Arab Emirates. The tiny Arabian country is one of the few countries on Earth that doesn’t have a formal extradition treaty with the US.
But Zhao did travel back to the US to plead guilty on November 21, 2023, also agreeing to resign as CEO of Binance. A day later, he was released on a $175 million personal recognizance bond.
Since then, Zhao has been living at his sister’s place in Los Angeles and was banned by the court from leaving the US due to the aforementioned fear of him fleeing, Bloomberg reported.
FTX founder Sam Bankman-Fried leaves Federal court, Wednesday, July 26, 2023, in New York
Zhao pictured in 1989 as a child. He moved to Canada at the age of 12
Despite all the months long downfall of Zhao, Binance remains the world’s largest cryptocurrency exchange by volume in the world by far.
The exchange processed $18.1 trillion worth of crypto trades in 2023, according to CCData, a crypto market data firm.
The only difference now is that Zhao, who had been one of the most closely followed men in crypto, has ceded his role as the public face of Binance.
Instead, the much more reserved Richard Teng has taken over the CEO role. Look no further than Teng’s social media silence compared to Zhao. He has a measly 279 posts on X, whereas Zhao has close to 10,000.
Teng also has experience in the financial regulation and compliance, having been the head regulator of the Abu Dhabi Global Market, leading some to believe he’ll steer Binance out of its illegal habits for good.
Teng will certainly be dealing with the lawsuit the SEC filed against Binance, Binance.US and Zhao himself last June for allegedly operating unregistered exchanges and commingling users’ funds.
As a cofounder, Yi He also has a profound role at Binance. She said in December in an ‘ask me anything’ session on X that she focuses on users’ needs and complaints, while Teng deals with global regulators and makes sure Binance is compliant.
Zhao’s next moves after he serves his sentence were spelled out in a February letter to the court.
He plans to use blockchain technology, the backbone of cryptocurrency transactions, ‘with the aim of curing diseases once and for all, as well as providing medical access to billions in the world.’
Zhao has also been spending last five months traveling the country to meet with other entrepreneurs and businesspeople, one of which was OpenAI CEO Sam Altman, the New York Times reported.
This much is clear, even if Zhao doesn’t return to crypto after his sentence, he will be using his billions to advance his pet causes, which include artificial intelligence and biotechnology.
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