Changpeng Zhao, the founder and former CEO of cryptocurrency exchange Binance, is facing a potential decade-long prison sentence. The revelation comes from a recent court filing by the US Department of Justice (DoJ) that not only highlighted a stringent travel restriction for the crypto billionaire but also the looming possibility of a substantial term behind bars.
Despite not being found guilty of mismanaging customer funds, unlike his American counterpart Sam Bankman-Fried, Zhao might still have to serve a 10-year sentence because he pleaded guilty to one count of violating the Bank Secrecy Act. According to the DoJ, this charge is linked to Binance’s alleged role in a vast global criminal operation.
Binance Agrees to $4.3 Billion Legal Settlement, Forcing CEO ‘CZ’ to Step Down and Plead Guilty
Last week, the world’s largest crypto exchange agreed to a historic $4.3 billion fine, which was by far the largest penalty imposed by the US Treasury and the Financial Crimes Enforcement Network (FinCEN) on a corporate defendant, bringing an end to years-long criminal investigations against the firm.
According to an unsealed court document, Binance was accused of failing a maintain a proper anti-money laundering program, operating an unlicensed money-laundering business, and violating US sanctions law.
Legal experts anticipate a 12 to 18-month sentence for Zhao at a minimum-security US prison. But the DoJ’s filing indicates a potential flight risk for the Binance founder, given his UAE citizenship and billionaire status, and the Emirate’s non-extradition policy.
DoJ Seeks To Hold Zhao In The US While Magistrate Allows Him To Reside In The UAE Until Sentencing
DoJ lawyers argued that should he decide not to return to the US to “face an uncertain sentence”, then there is no reason to believe that the UAE government would “hand him over”. Therefore they have asked the court to require the former Binance CEO to remain in the “continental” United States in the period between his plea and sentencing.
However, the Justice Department was left frustrated by Magistrate Judge Brian Tsuchida’s decision to allow Zhao to reside in the UAE until two weeks before his sentencing, which is scheduled for February 23, 2024.
Judge Tsuchida stated that Zhao “presents no flight risk” even while residing in the UAE because of relevant facts, including his voluntary self-surrender, his intent to travel to the US to resolve the case and “not run”, and the bail package that he proposed.
The case is further complicated by Binace’s egregious violations, such as facilitating crypto financing for criminal and terrorist organizations, which has made the DoJ draw parallels with acts of mass destruction.
The impending decision by Judge Richard A. Jones on CZ’s pre-sentencing travel will be pivotal to the case. While his legal team will push for leniency, the DoJ is looking to get Zhao a sentence that will serve as a deterrent against future money laundering cases in the crypto sector.
Former SEC official John Reed Stark noted that he wouldn’t be surprised if CZ fails to cooperate with federal prosecutors or “take some action” to violate his plea arrangement. However, he warned that if the DoJ does not secure a sentence that deters future money laundering conduct in the “crypto-verse”, then the plea deal could end up backfiring on the agency.
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CZ Plans to Take a Break While Remaining a Majority Shareholder and Consultant For Binance
Meanwhile, Zhao has made his future plans clear. He has expressed his desire to take a break for the first time in almost seven years. The ex-Binance chief wants to do some passive investing and become a minority token or shareholder in blockchain, Web3, DeFi, AI, and biotech startups.
CZ will remain a majority shareholder of Binance but will not be involved in any company operations. However, he will be available to the team to consult “as needed”, consistent with the framework set out in the US agency resolutions.
He also assured customers that their funds are safe on the platform while pointing out that US regulators do not allege that Binance misappropriated any user funds or engaged in any market manipulation.
Changpeng ‘CZ’ Zhao has been replaced as Binance chief by Richard Teng, the former head of the company’s regional markets and ex-CEO of the Financial Services Regulatory Authority of the Abu Dhabi Global Markets.