Binance’s Legal Woes Intensify as Founder Faces Possible Jail Time

Why Trust Techopedia
Key Takeaways

  • Changpeng Zhao faces a three-year sentence and a $50 million fine for anti-money laundering violations, with the DOJ emphasizing strong deterrence.
  • Zhao’s defense argues for probation over prison, citing his lack of detailed knowledge of illicit activities and minimal transactions from sanctioned countries.
  • Zhao's guilty plea and subsequent $4 billion settlement precede his sentencing scheduled for April 30, 2024, amid increasing U.S. crackdown on crypto exchanges.

Binance founder Changpeng Zhao is subject to a three-year jail sentence and a $50 million fine in the US, a fearsome warning for the crypto industry.

Prosecutors from the United States Department of Justice (DOJ) had requested that Binance founder and former CEO Changpeng Zhao (CZ) should serve a three-year jail sentence.

This was disclosed on April 23 after he pleaded guilty to violating laws against money laundering.

The US DOJ filed a sentencing memo that petitioned for a 36-month (3 years) prison term and a $50 million fine for Changpeng Zhao. The memo outlined the severity of Zhao’s violations and the need for a major penalty to deter similar misconduct in the future.

The DOJ stated that the sentence, in this case, would send a message to Zhao and the world. They noted that Zhao had gained substantial rewards for violating U.S. law.

The regulator emphasized that the consequences of such violations must be significant to effectively punish Zhao for his criminal actions and deter others who might consider amassing fortunes and building business empires by breaking U.S. law.

The memo detailed how Zhao’s actions were part of a calculated effort to rapidly expand Binance’s operations and maintain its position as the leading cryptocurrency exchange. It pointed out that the former CEO failed to implement an effective Anti-Money Laundering (AML) program on Binance, which allowed many actors to use the platform for various illicit activities.

These activities included operating mixed services to hide the source and ownership of cryptocurrency, transacting in illicit proceeds from ransomware attacks, and moving proceeds from darknet market transactions, exchange hacks, and various internet-related scams.

Interestingly, the US DOJ’s sentencing memo noted that while its Sentencing Guidelines recommend 12 to 18 months, they are pushing for a harsher sentence on Zhao, citing his alleged knowledge and encouragement of the violations.

Binance’s Stance on New Allegations

In response to the DOJ’s memo, the Binance founder’s defense team filed their sentencing memo, arguing against incarceration. They noted that no defendant in a “remotely similar BSA case” had ever been sentenced to prison. Instead, they suggested that Changpeng Zhao be sentenced to probation, including home confinement at his Abu Dhabi, UAE residence.

The defendant’s attorney sentencing memo detailed that CZ did not know and was never “explicitly informed” of specific transactions on Binance with bad actors.

The filing noted that as a non-U.S. company, Binance was not prohibited from having users from U.S.-sanctioned countries on its platform. At the same time, transactions from these regions accounted for only a “microscopically tiny portion of Binance’s trading volume.”

The defendant’s attorney also argued that CZ does not pose any risk of repeat offenses and should, therefore, be sentenced to probation rather than prison.

US Crypto Legal Battle: Timeline

CZ pleaded guilty to violating money laundering and the Bank Secrecy Act (BSA) in November 2023, followed by Binance’s agreement to a $4 billion settlement with US regulators. Although he has remained in the US since he posted bail, his sentence hearing is scheduled for April 30, 2024.

US prosecutors are gradually cracking down on crypto exchanges operating in the country, charging executives who flout the law with criminal offenses.

On March 26, KuCoin exchange and two founders, Chun Gan and Ke Tang, were indicted for “conspiring to operate an unlicensed money transmitting business and violations of the BSA.”

However, no date has been set for a trip, and no settlement awaits.