U.S. prosecutors are pushing for a 36-month prison sentence for Changpeng Zhao, the founder and former chief executive of Binance, the world's largest cryptocurrency exchange, following his guilty plea to violating laws against money laundering. In a sentencing memorandum filed late Tuesday with the court for the western district of Washington, prosecutors argued that Zhao should serve a sentence twice the maximum recommended under federal guidelines to reflect the gravity of his crimes and send a strong message about the importance of compliance with U.S. law.
Under advisory guidelines, Zhao's sentencing would typically fall within a range of 12 to 18 months in prison. However, prosecutors contend that a custodial sentence of 36 months is necessary to "reflect the seriousness of the offense, promote respect for law, afford adequate deterrence, and be sufficient but not greater than necessary to achieve the goals of sentencing."
Zhao, who stepped down as Binance's CEO in November last year after reaching a plea agreement, is accused of willfully failing to implement an effective anti-money laundering program as required by the Bank Secrecy Act and allowing Binance to process transactions involving proceeds of unlawful activity, including transactions between Americans and individuals in sanctioned jurisdictions.
Prosecutors allege that Zhao violated U.S. law on an "unprecedented scale" and exhibited a "deliberate disregard" for Binance's legal responsibilities. The memorandum states that, under Zhao's control, Binance operated on a "Wild West" model, welcoming criminals and failing to report more than 100,000 suspicious transactions with designated terrorist groups such as Hamas, al Qaeda, and ISIS. The platform also allegedly supported the sale of child sexual abuse materials and received a large portion of ransomware proceeds.
"Zhao bet that he would not get caught, and that if he did, the consequences would not be as serious as the crime," the memorandum stated. "But Zhao was caught, and now the Court will decide what price Zhao should pay for his crimes."
In response to the prosecutors' request, Zhao's lawyers have sought leniency, requesting probation instead of a prison sentence. They cite Zhao's status as a first-time offender, his "unflinching" acceptance of responsibility, his $50 million criminal fine, and the lack of imprisonment for defendants in similar cases. The lawyers also argue that Zhao has made Binance an industry leader in compliance, "despite the initial failures that led to this prosecution."
Binance has separately been sued by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission over the alleged mishandling of customer assets and the operation of an illegal, unregistered exchange in the U.S. The exchange agreed to pay a $4.32 billion criminal penalty, which included a $1.81 billion criminal fine and $2.51 billion in restitution. Zhao also paid a $50 million fine to the U.S. Commodity Futures Trading Commission.
Zhao, who has been free on a $175 million bond, agreed not to appeal any sentence within federal guidelines. His official sentencing is expected to take place on April 30 before U.S. District Judge Richard Jones.
The case against Zhao and Binance highlights the increasing scrutiny faced by cryptocurrency exchanges and their executives as regulators seek to combat money laundering and other financial crimes within the industry. The outcome of Zhao's sentencing hearing could set a significant precedent for future cases and serve as a warning to other crypto businesses about the consequences of non-compliance with U.S. laws and regulations.
