Binance founder and former CEO Changpeng “CZ” Zhao could spend three years in prison for his role in enabling the crypto exchange to violate federal sanctions and money laundering laws, the U.S. Department of Justice said Tuesday evening. The former CEO’s lawyers argued that he should not serve jail time, citing the fine he paid and his “extraordinary acceptance of responsibility.”
Lawyers with the DOJ filed a sentencing memo arguing that he should spend 36 months in prison and pay a $50 million fine after pleading guilty last November to violating the Bank Secrecy Act. Hours later, Zhao’s defense team filed its own sentencing memo, stating that “no suspect in a remotely similar BSA case has ever been sentenced to incarceration.” Instead, they suggested he be sentenced to probation, which could include house arrest at his home in Abu Dhabi.
“The punishment in this case will send a message not only to Zhao, but also to the world. Zhao has reaped enormous rewards for his violation of U.S. law, and the price for that violation must be significant to effectively punish Zhao for his criminal actions and deter others who may be tempted to build fortunes and business empires through the violate U.S. law,” the filing said.
Zhao originally faced an 18-month prison sentence under the terms of his plea deal. The DOJ argued in Tuesday’s filing that “the scope and consequences of Zhao’s misconduct were enormous,” and that “an upward variance is therefore appropriate here.”
“Partly because of Zhao’s failure to implement an effective AML program at Binance, illicit actors used Binance’s exchange in a variety of ways, including operating mixing services that hid the source and ownership of cryptocurrency; trading in illegal proceeds from ransomware attacks; and moving the proceeds of darknet market transactions, exchange hacks and various internet-related scams,” the filing said, pointing to funding moves from darknet markets and crypto mixers.
Many of the filings echo the arguments the Justice Department made when it first announced charges against Binance and Zhao last year, pointing to the way the exchange operated within the US.
The filing also goes through the calculations of the DOJ sentencing guidelines, noting that the guidelines recommend 12 to 18 months but saying Zhao knew Binance was violating the law and encouraged it.
The filing also focused on how the Sentencing Guidelines address violations of the Bank Secrecy Act, saying they are “not intended to adequately punish misconduct on this scale or misconduct that harms U.S. national security.”
The $50 million fine had already been agreed upon by both the prosecutor and Zhao’s defense team. Zhao also waived the right to appeal a sentence of up to 18 months.
Zhao did not know and was never “explicitly informed” about specific transactions on Binance involving criminal funds, according to his defense filing.
“Although Probation refers to a conversation in which Binance’s Chief Compliance Officer warned Mr. Zhao that there were users from sanctioned countries on Binance.com… the reality is that Binance, as a non-US company, was not prohibited from from US-sanctioned countries on their platform,” the filing said. In contrast, the sanctions charge the company argued is new and limited (first applied against Binance) that an algorithmic matching engine violates US sanctions law by targeting users in sanctioned countries. randomly link countries to users in the United States.
These trades constituted only a microscopic portion of Binance’s trading volume, the filing said, making it “inconceivable that Mr. Zhao knowingly acted to effect them.”
Zhao also poses no risk of recidivism, the filing argued, saying he should be sentenced to probation instead of prison.
Portions of the memo have been redacted, although the sections immediately following the redacted portions refer to Zhao’s background and letters of support.
Zhao’s supporters include Yi He, the mother of three of his children, his ex-wife Yang Weiqing, his two adult children with Yang, former US senator and current Binance lobbyist Max Baucus and several dozen other individuals.
His sentencing was originally scheduled to take place at the end of February, but the hearing was postponed by mutual agreement until April 30. He has been unable to return to Dubai, where his partner and some of his children live, since he first appeared in federal police custody. court in Seattle, Washington last year.
Binance, the world’s largest crypto exchange, pleaded guilty to its own charges at the same time as Zhao, agreeing to a massive $4.3 billion fine and that it would report to a court-appointed regulator. The monitor has yet to be appointed.
UPDATE (April 24, 2024, 06:05 UTC): Adds extra details.
UPDATE (April 24, 2024, 07:30 UTC): Adds information about defense files.
