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Changpeng Zhao Prison Sentence Could be 36 Months after Binance Founder Thought “Better to Ask Forgiveness Than Permission”

Last Updated April 24, 2024 10:56 AM
Teuta Franjkovic
Last Updated April 24, 2024 10:56 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Binance founder Changpeng “CZ” Zhao faces up to three years in an American prison.
  • The United States Department of Justice said Zhao thought it “better to ask for forgiveness than permission”.
  • The DoJ aims to make an example of Zhao after the China-born entrepreneur pleaded guilty to breaking money laundering laws.

The United States Department of Justice has recommended a three-year prison sentence for Binance’s founder and former CEO, Changpeng “CZ” Zhao, for allowing the crypto exchange to breach federal sanctions and money laundering laws.

This statement , which said Zhao though it better Binance asked “for forgiveness than permission” was issued on Tuesday night.

Binance Founder Faces Prison, $50M Fine for Flirting with US Law

Attorneys from the DOJ have submitted a sentencing memo  recommending that Zhao, who pleaded guilty to violating the Bank Secrecy Act last November, should serve 36 months in prison and pay a $50 million fine.

According to the filing :

“The sentence in this case will not just send a message to Zhao but also to the world. Zhao reaped vast rewards for his violation of US law, and the price of that violation must be significant to effectively punish Zhao for his criminal acts and to deter others who are tempted to build fortunes and business empires by breaking US law.”

Changpeng Zhao is known for his modest lifestyle despite his significant influence in the tech world. Zhao, whose only indulgence is owning three mobile phones, made a significant personal bet on Bitcoin in 2014 by selling his house in Shanghai and opting not to invest in luxury items like cars, yachts, or fancy watches.

Now, he openly discussed  the company’s approach to American regulations with his team, encapsulating it with the phrase, “Better to ask for forgiveness than permission”. This approach saw the exchange target American users to fuel growth, despite knowing it would place the company under US jurisdiction.

Zhao acknowledged that not adhering to American laws was a deliberate choice that played a significant role in the company’s success and profitability. He believed full compliance would have limited Binance’s size, US revenue, and additional earnings from network effects.

Binance Founder’s Plea Backfires: DOJ Pushes for Harsher Jail Time

Under the terms of his plea agreement, Zhao originally faced up to 18 months in prison. However, due to the extensive and severe nature of his misconduct, the DOJ argued for an increased sentence in Tuesday’s filing. Also, Zhao was first ordered to pay $150 million, while Binance faced a fine of $2.7 billion.

The DOJ emphasized  Zhao’s failure to establish an effective anti-money laundering (AML) program at Binance led people using the platform for illicit activities.

These included

  • Operating mixing services that concealed the origins and ownership of cryptocurrency.
  • Processing funds from ransomware attacks, and facilitating transactions involving proceeds from darknet markets, exchange hacks, and various internet-related scams.
  • Allowing users to circumnavigate American sanctions against Iran and other countries.

Crypto Laundering Scandal: Binance Founder’s Plea Backfires

The recent DOJ filing  largely reiterates accusations made against Binance and Zhao when charges were first announced last year. The document also details the DOJ’s sentencing guidelines calculations, which suggest a range of 12 to 18 months.

However, it emphasizes that Zhao was aware of the legal violations at Binance and encouraged them. Furthermore, the filing criticizes the current Sentencing Guidelines for Bank Secrecy Act violations. It argues the guidlines neither sufficiently address nor punish misconduct of this magnitude or misconduct that jeopardizes American national security.

The prosecution and Zhao’s defense team mutually agreed on the $50 million fine. Meanwhile, Zhao waived his right to appeal any sentence up to 18 months. Originally scheduled for late February, his sentencing was postponed to April 30 by mutual agreement. Since his appearance in Federal court in Seattle, Washington last year, Zhao has been unable to return to Dubai, where his partner and some of his children reside.

Binance, recognized as the world’s largest crypto exchange, also pleaded guilty alongside Zhao. As part of its plea, Binance agreed to pay a substantial fine of $4.3 billion. It also committed itself to reporting to a court-appointed monitor, who has not yet been appointed.

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