Qiao Changpeng, the founder and former CEO of cryptocurrency exchange Binance, appeared in a Seattle courtroom on Tuesday to learn whether he could receive an extended sentence for crimes he admitted to committing. I headed.
In November, Zhao pleaded guilty to enabling money laundering on Binance. As part of a plea deal with the Justice Department, Mr. Zhao agreed to step down as CEO. U.S. District Judge Richard Jones has been considering the appropriate punishment for Zhao, also known as CZ, for several months.
A former giant in the cryptocurrency sector, Zhao grew Binance globally into the world’s largest centralized cryptocurrency exchange. By the time he left office, the company had more than $65 billion in assets. Unlike rival exchange FTX, which went bankrupt after its founder Sam Bankman Fried faced criminal charges, Binance continues to operate.
Total assets on the Binance platform are over $122 billionaccording to blockchain data firm Nansen, has risen about 88% following a sharp rise in cryptocurrency prices in recent months.
Prosecutors said in a sentencing memorandum to the court that Zhao violated U.S. law on an “unprecedented scale,” “deliberately ignored” Binance’s legal responsibilities, and promoted the exchange to a “Wild West” model. It was said that it was operated by
Mr. Zhao is accused of willfully failing to implement an effective anti-money laundering (AML) program as required by the Bank Secrecy Act and for illegal activities involving Americans and individuals in sanctioned areas. He is accused of allowing Binance to process transactions related to his earnings.
Binance processed $18.1 trillion worth of trading volume in 2023, according to data from crypto market data firm CCData.
About 80% of this amount ($14.4 trillion) comes from derivative products such as futures contracts, while the remaining $3.7 trillion comes from spot trading. Derivatives trading is an important part of Binance’s business.
Mr. Zhao agreed to pay a $50 million fine on top of the $4.3 billion in fines and forfeiture that Binance was ordered to pay for violating the U.S. Bank Secrecy Act and sanctions against Iran. The case was a joint effort between the Department of Justice, the Commodity Futures Trading Commission, and the Treasury Department, but the SEC, which had filed its own lawsuit against the exchange, was notably absent.
The government is seeking a sentence of three years in prison, twice the upper limit of the guideline range, to “reflect the seriousness of his crimes,” according to a prosecutor’s memo.
Mr. Zhao’s lawyer asked for a five-month suspended sentence. They claim that Mr. Zhao accepts responsibility for circumventing AML requirements and has a history of charity work and social service. Furthermore, he has already spent more than five months in the United States, away from his family, since pleading guilty.
More than 160 of Zhao’s supporters, including family members, Binance customers, and members of the United Arab Emirates’ royal family, have written a memo to the court asking for mercy.
likely to be sentenced to prison
Most experts who spoke to CNBC about the upcoming sentencing expect Zhao to spend some time behind bars.
“This is a high-profile case, and the judge will feel pressured not to let up during sentencing,” former federal prosecutor Neema Rahmani told CNBC. He expects a sentence of one or two years.
Braden Perry, a former senior trial attorney at the CFTC, said the federal sentencing guidelines provide a framework but allow judges some discretion.
“Sentencing guidelines call for a recommended range of 10 to 16 months for CZ, who is a first-time nonviolent offender,” said Perry, now a partner at the law firm Kennyharts Perry. said.
Perry said all of these concessions work in Zhao’s favor, including that the defendant never went to trial, saving judicial and prosecutorial resources, and that he accepted responsibility and settled with multiple agencies. He said it could influence the judge’s decision.
“While we believe the judge will recognize the sheer scale of the potential suspicious transactions and the lax AML program to date, he will also recognize the efforts and remediation that has been taken,” Perry said. “Taking all factors into account, I predict a guideline sentence with a prison term, which would be a deterrent, but taking into account the guilty plea and all other factors used in sentencing. It will be.”
Iesha Yadav, a law professor and associate dean at Vanderbilt University, wants the judge to impose a sentence in the “low single digits, perhaps three years.” However, this could include a minimum term of imprisonment and a remaining term of probation.
Yadav suggested that “Binance will benefit Mr. Zhao in contrast to FTX, which has been revealed to be a criminal enterprise.””
“Although Binance was found guilty of extremely serious crimes, it remains a viable, albeit weakened, business, continues to attract customers, and has been able to rebuild its operations by focusing on compliance under oversight. We are aiming to do so,” Yadav said.
Former federal prosecutor Paul Tuchman also expects some prison time due to the company’s failure to implement AML requirements and the amount of funds that flowed through Binance without such regulation.
“Although he is a first-time offender, the factors I just mentioned are likely more important than his lack of a criminal history,” Tuchman said. “The need for general deterrence in the crypto industry, and in the financial sector in general, is so great that we need to send a message through this text that the Department of Justice has taken this position, and that the judges will likely agree. The consequences of violating these rules cannot simply be viewed as a cost of doing business. ”
Tre LaBelle, a Los Angeles corporate lawyer, said a shorter sentence in the range of five to seven months is likely, along with an extended period of probation.
Mr. Lovell is different from Mr. Bankman Fried, who was convicted of fraud. Mr. Zhao was sentenced to 25 years in prison, but has not been charged with fraud or other crimes worthy of long prison terms.
“Furthermore, his letter to the judge does reflect remorse, discussing the poor decisions he made and confirming that the Binance platform has implemented strict anti-money laundering regulations at his direction. It shows that we’re adopting it,” Lovell said.
david weinsteinThe former federal and state prosecutor, who now works as a corporate compliance and white-collar defense attorney at Jones Walker, said a prison sentence is an important deterrent.
“I think the sentence will be over in less than a year,” he said.
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