Binance Founder Changpeng Zhao Resigns as Binance CEO: Handed 4-Month Prison

Before his sentencing on Tuesday, Changpeng Zhan issued an apology for errors made during his term as CEO of Binance

Published: May 2, 2024 05:46:08 PM IST

Binance former CEO and founder Changpeng Zhao. Photo: Photo by David Ryder/Getty Images

Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, was sentenced to four months in prison for failing to establish adequate anti-money laundering protections at his company.

Zhao, who previously served as Binance's CEO, pleaded guilty to the charges in November 2023. In handing down the sentence, Judge Richard Jones stated that Changpeng Zhao had prioritised "Binance's growth and profits over compliance with US laws and regulations."

While the judge does not believe Changpeng Zhao is likely to re-offend, he acknowledged the significant scale of the compliance failures at Binance under Zhao's leadership. As part of the sentence, Changpeng Zhao was also fined $50 million personally, and Binance agreed to pay a $4.3 billion settlement with various US government agencies.

In a letter to the judge, he expressed deep regret for the choices that led him to court, assuring that such actions would not be repeated.

Last fall, Binance settled with the federal government, deciding to pay over $4 billion in fines and penalties for involvement in anti-money laundering activities, unlicensed money transmitting, and sanctions violations.

Following an extensive investigation, US authorities in November revealed that Binance had facilitated illicit activities on its platform, including transactions related to child exploitation, drug trafficking, and terrorist financing.

Binance lacked proper protocols to detect and report money-laundering risks, with employees being aware that this deficiency attracted criminal elements to the platform. Court documents highlighted a compliance staffer's remark: "We need a banner 'is washing drug money too hard these days - come to Binance we got cake for you.'"

Zhao's sentencing follows the recent sentencing of his former competitor, Sam Bankman-Fried, to 25 years in federal prison for his involvement in a multibillion-dollar fraud through FTX, the second-largest crypto exchange before its collapse in 2022.

These consecutive sentences reflect the Department of Justice's stricter stance on financial crimes, particularly in the cryptocurrency market.

The cryptocurrency industry has been eager to shed its standing as a haven for criminal activity and position itself as a more mainstream financial system. However, crypto skeptics remain wary of the $2 trillion industry, arguing that the Department of Justice (DOJ) has not done enough to combat illicit behaviour.

This sentiment reflects the ongoing tension between the crypto industry's efforts to gain legitimacy and the concerns of those who view the sector with suspicion. The DOJ's approach to prosecuting financial crimes in the crypto space continues to be a subject of debate and scrutiny.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash