Another day, another crypto mogul pushed behind bars. This time, it’s Changpeng Zhao aka CZ- who is the founder and former CEO of the largest crypto exchange ‘Binance’.
47-year-old Zhao or “CZ’’ was sentenced to four months prison on Tuesday over money laundering charges by a district court judge in Seattle, USA.
Zhao was recently charged by the US Department of Justice (DoJ) after investigations revealed that crypto exchange platform Binance had facilitated illegal transactions by customers in sanctioned jurisdictions like Iran, Syria and Cuba, thereby “threatening” the U.S. financial system. The charges also included allegations of terrorist groups using Binance platform for cryptocurrency transactions.
Even as the four months sentencing appears to be lenient, CZ’s conviction sent shockwaves across the crypto community as it came in the wake of FTX collapse and its CEO Sam Bankman-Fried being sentenced to 25 years.
Zhao’s modest beginnings and his rise to fame with Binance closely follows the trajectory of several crypto moguls who have fallen on the wrong side of the law and ended up behind bars.
Who is Changpeng Zhao “CZ”?
Changpeng Zhao “CZ”, was born in 1977 in China. He moved to Canada in 1989 after the Tiananmen Square events, gaining Canadian citizenship shortly after.
Changpeng Zhao’s professional journey in the tech world led him to work for various financial firms before he entered into the cryptocurrency world. His fascination with cryptocurrencies grew when he learned about Bitcoin in 2013.
By 2017, Zhao founded Binance, a cryptocurrency exchange that quickly grew into the world’s largest due to its rapid scalability, innovative features, and global reach.
As of May 1, 2024, Binance has a market cap of a whopping $2.32 trillion, making it the biggest crypto exchange in the world. In no time, CZ became a cult figure in the crypto community, with eyes set on the future.
The Downfall
In 2023, U.S. authorities charged Binance and Zhao of violating anti-money laundering (AML) regulations and the Bank Secrecy Act (BSA). Zhao pleaded guilty to violating the BSA by not implementing sufficient AML measures within the Binance ecosystem.
The charges centred on Binance’s failure to register as a money-transmitting business and its involvement in transactions that violated U.S. sanctions.
Zhao admitted to failing to establish an effective AML program within Binance and pleaded guilty to these charges. The DoJ noted that Binance focused more on market expansion and profits over compliance with U.S. law, which facilitated money laundering activities.
The DOJ stated that Binance’s operation facilitated illegal transactions, including enabling transactions in sanctioned jurisdictions like Iran, Syria, and others, thereby threatening the U.S. financial system. Allegations of terrorist groups like Hamas, Al Qaeda and ISIS using Binance as a medium for crypto trade had also surfaced.
Evidence Leading to Conviction
Evidence against Zhao and Binance included their insufficient customer due diligence process and their failure to prevent suspicious transactions.
The DOJ highlighted Binance’s significant compliance failures and its avoidance of U.S. regulations. This lack of regulatory compliance enabled the platform to handle big amounts of money without proper oversight, creating a safe haven environment for illicit activities.
The evidence presented by the U.S. Department of Justice (DOJ) included Internal communications and emails between Binance’s management and staff, records of transactions facilitated by Binance, reports highlighting Binance’s lack of adequate compliance measures for anti-money laundering (AML) and know-your-customer (KYC) processes and data that showed U.S. customers were able to access Binance despite restrictions, indicating evasion of U.S. regulations.
Binance’s Involvement In Terror Funding
Binance, the world’s largest cryptocurrency exchange, has been accused of facilitating money laundering that benefited terrorist organisations such as Hamas, al-Qaeda, and ISIS.
For instance, FinCEN reported that the infamous terror group Hamas leveraged Bitcoin to raise funds.
The investigation found that Binance enabled over 1.5 million cryptocurrency trades valued at approximately $900 million, violating U.S. sanctions. These transactions involved Iran and recognized terrorist groups like Iran-supported Hamas, al-Qaeda, and ISIS.
Binance was found to have weak compliance controls that allowed individuals associated with terrorist groups like Hamas and ISIS to use the platform. Additionally, Binance faced accusations of permitting transactions related to child exploitation and ransomware.
Conviction of Zhao, jail term, and penalty
Initially, prosecutors sought a three-year prison sentence for Zhao. However, he received a more lenient four-month sentence due to his cooperation with the authorities and his guilty plea.
“We are not suggesting that Mr. Zhao is Sam Bankman-Fried and he is a monster, and we are not trying to kill the cryptocurrency industry,” stated by a prosecutor Kevin Mosely, deputy chief of the U.S. Justice Department’s Bank Integrity Unit.
“I fully recognize the seriousness of the mistakes I made,” Zhao admitted in court Tuesday morning. “I learned an important lesson here that I will take with me.”
Zhao’s legal team argued that his punishment should be consistent with similar cases, pointing to BitMEX founder Arthur Hayes, who had received probation for a similar offence.
Judge Jones commended Zhao for showing an “exceptional acceptance of responsibility.” The judge also lauded Zhao’s rise from poverty in China to business success as well as his charitable efforts and his commitment to aiding others.
As part of the resolution, Binance and Zhao agreed to pay $4.3 billion in penalties, one of the largest corporate penalties in U.S. history. The breakdown of this $4.3 billion penalty comprises of $3.4 billion to the Financial Crimes Enforcement Network (FinCEN) for violating anti-money laundering (AML) regulations, $968 million to The Office of Foreign Assets Control (OFAC) for sanctions violations and $50 million penalty personally by Zhao.
Binance also committed to strengthening its compliance framework and will be monitored for three years to ensure adherence to regulations.
As of now, Richard Teng will assume the role of CEO.
Read more about Changpeng Zhao (CZ)
