Binance founder and CEO Changpeng Zhao attended a conference held at the Porte de Versailles Exhibition Center in Paris, France on June 16, 2022.
Benoit Tessier | Reuters
Changpeng Zhao, the founder and former CEO of cryptocurrency exchange Binance, went to a Seattle courtroom on Tuesday to learn whether the crimes he pleaded guilty to would land him in jail and extend his sentence.
In November, Zhao pleaded guilty to money laundering at Binance. As part of a plea agreement with the Justice Department, Zhao agreed to resign as CEO. For months, U.S. District Judge Richard Jones has been weighing the appropriate punishment for Zhao, also known as CZ.
Zhao was once a giant in the cryptocurrency space, growing Binance into the largest centralized cryptocurrency exchange in the world. When he left office, the company held more than $65 billion in assets. Unlike rival exchange FTX, which fell into bankruptcy following criminal charges against founder Sam Bankman-Fried, Binance continues to operate.
Total assets on Binance platform exceed $122 billionAccording to blockchain data firm Nansen, the price of cryptocurrencies has increased by about 88% after a sharp rise in recent months.
According to a sentencing memorandum filed with the court, prosecutors said Zhao acted on an “unprecedented scale” and operated the exchange in a “Wild West” model with “willful disregard” for Binance’s legal responsibilities.
Zhao is accused of knowingly failing to implement an effective anti-money laundering (AML) program as required by the Bank Secrecy Act and allowing Binance to process transactions involving the proceeds of illegal activities, including transactions between U.S. persons and individuals in sanctioned jurisdictions .
According to data from CCData, Binance will handle a transaction volume of US$18.1 trillion in 2023. About 80% of this amount (or US$14.4 trillion) comes from derivatives such as futures contracts, and the remaining US$3.7 trillion comes from spot transactions.
Derivatives trading is an important part of Binance’s business.
Zhao agreed to pay a $50 million fine in addition to the $4.3 billion in fines and forfeitures Binance was ordered to pay for violating the U.S. Bank Secrecy Act and sanctions against Iran. The action was jointly launched by the Justice Department, Commodity Futures Trading Commission and Treasury Department, while the Securities and Exchange Commission, which filed the lawsuit against the exchange, was conspicuously absent.
The government asked for a three-year sentence, twice the guideline limit, to “reflect the seriousness of his crimes,” the prosecutor’s memo said.
Zhao’s lawyers asked for a five-month suspended sentence. They said Zhao had accepted responsibility for evading anti-money laundering requirements and that he had a history of charity and community service. In addition, he has been away from his family in the United States for more than five months since pleading guilty.
More than 160 Zhao supporters, including family members, Binance customers and members of the UAE royal family, have written to the court asking for leniency.
May go to jail
Most experts interviewed by CNBC predicted Zhao would spend time in prison.
“This is a high-profile case and the judge is going to feel the pressure not to be soft on sentencing,” former federal prosecutor Neama Rahmani told CNBC. He expected to be sentenced to one or two years in prison. .
Braden Perry, a former senior trial attorney at the U.S. Commodity Futures Trading Commission (CFTC), said federal sentencing guidelines provide a framework but allow judges some discretion.
“For CZ as a nonviolent first-time offender, the sentencing guidelines call for a 10 to 16-month counseling period,” said Perry, now a partner at the law firm Kennyhertz Perry.
In Zhao’s favor, Perry said, the defendant never went to trial, saving judicial and prosecutorial resources, and he accepted responsibility and settled with multiple agencies, all concessions that could have swayed a judge’s decision.
“I believe the judge will acknowledge the magnitude of the potentially suspicious transactions and the previously lax anti-money laundering program, but will also acknowledge the efforts and remedial measures taken,” Perry said. “All factors considered, I predict that the guideline sentence will include a prison sentence period. This would prevent all other factors from being used in plea and sentencing decisions.”
Yesha Yadav, a law professor and associate dean at Vanderbilt University, is seeking a sentence of “low single digits — maybe three years.” However, this may include a minimum jail time and the remainder of probation.
Yadav said Zhao would benefit from Binance’s comparison to FTX, which was “exposed as a criminal enterprise.”“
Yadav said: “While Binance was found guilty of extremely serious charges, it is still a business that is still operating, although weakened, it continues to attract customers and hopes to focus on cooperation under the regulatory regime. regulations to revive its fortunes.
Former federal prosecutor Paul Tuchmann also expects to be jailed for failing to enforce anti-money laundering requirements and the amount of money flowing through Binance without such controls.
“Although he is a first-time offender, those factors I just mentioned are probably more important than having a criminal record,” Tuchman said. “The need for general deterrence in the cryptocurrency industry and the financial industry in general is so great that I think The Department of Justice will take this position, and judges are likely to agree, that this sentence is needed to send a message that the consequences of violating these rules cannot be viewed solely as a cost of doing business.
Tre Lovell, a Los Angeles corporate attorney, said the sentence would likely be shorter, at five to seven months, while probation would also be extended.
Lovell added that unlike Bankman-Fried, he was convicted of fraud and Mr Zhao was sentenced to 25 years in prison but has not yet been charged with fraud or other crimes that would warrant a longer sentence.
“Furthermore, his letter to the judge did reflect remorse, discussed the poor decisions he made, and demonstrated that Binance had instituted strict anti-money laundering controls under his direction,” Lovell said.
david weinsteinThe former federal and state prosecutor, now a corporate compliance and white-collar defense attorney at Jones Walker, said incarceration serves as an important deterrent.
“I think the sentence will be less than a year,” he said.
watch: Bankman-Fried Sentencing
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