Binance Founder and Former CEO Changpeng Zhao Sentenced to 4 Months in Prison

A federal judge in Seattle, Washington sentenced Changpeng Zhao, the former CEO of the crypto exchange, to four months in prison at a hearing on Tuesday.

“This [case] is unprecedented in terms of volume, scale, and massiveness in dollar impact of noncompliance,” said Judge Richard Jones before issuing his sentence, according to The Verge.

The court recommended that Zhao serve his sentence in a low security federal prison in SeaTac near Seattle, according to the judgement document. Because he is not a US citizen, Zhao was ineligible to serve in a minimum-security camp that would have been far more comfortable than a prison.

Zhao initially pleaded guilty to failure to maintain an effective anti-money laundering program, a violation of the Bank Secrecy Act (BSA), back in November, as the Department of Justice revealed charges against him and Binance. The DOJ imposed $4.3 billion in penalties to settle those charges, as well as a fine of $50 million for Zhao personally. Zhao also had to resign as CEO.

Today’s sentencing concludes not only those charges, but an extensive investigation into Binance rumored to be years in the making. The prosecution had asked for a sentence of three years in prison, while the defense said probation would be more than enough for Zhao’s crimes.

“I think [the sentencing is] just,” said Justin Paperny, a former broker who did 18 months in prison for fraud himself and now advises white-collar criminals facing jail time. “[Zhao’s] still a convicted felon and will endure many of the collateral consequences that accompany your conviction. But it’s clear the judge considered his character, contributions to society, and an otherwise stellar life.”

On the other hand, Dennis Kelleher, president and CEO of public interest group Better Markets, strongly disagreed with the sentencing.

“‘Crime pays’ is the message sent today not by the Judge but by the DOJ’s weak, minimalist sweet deal with Binance’s former CEO, CZ,” Kelleher said in a statement.

Despite intensified compliance due to the November settlement, Binance remains by far the largest exchange in the cryptocurrency ecosystem. The exchange handled almost $20 billion in spot trades and over $64 billion in derivatives over the past 24 hours, according to CoinMarketCap, dwarfing the nearest competition.

At the helm of Binance since its inception in 2017, Zhao has become one of the richest people in the world and one of the crypto industry’s most recognizable figures.

The case against him has, as a result, been of massive interest.

Originally founded in Shanghai, Binance relocated from China to Japan amid regulatory pressure before eventually being pushed out of Japan as well, leading to the company having no formal headquarters. Zhao maintained that exchanges like Binance.US used the brand while being “fully compliant with their local regulations.”

“Most regulations put AML above privacy,” Zhao wrote in a 2019 blog post. “It means they will require exchanges to run AML checks. The exchanges have no option here. Well, technically they have 2 choices: 1. run the AML checks, or 2. don’t do business here. Option 2 doesn’t help anyone.”

The Securities and Exchange Commission’s civil suit against Binance remains active before the Southern District of New York.

UPDATE (April 30, 2024, 4:18 p.m. ET): Added information on where Zhao has been recommended to serve his sentence, and comments from Paperny and Kelleher.

UPDATE (April 30, 2024, 3:31 p.m. ET): Added judge’s comment.