The United States Department of Justice (DOJ) has recommended that the founder and former chief executive of Binance, Changpeng “CZ” Zhao, should spend three years in prison for his role in enabling the crypto exchange to violate federal sanctions and money laundering laws.
The DOJ’s attorneys stated this in a sentencing memo filed in court on Tuesday. The attorneys argued that Zhao should pay $50 million in addition to spending 36 months in prison.
This comes as one of the officials of the crypto trading platform, Tigran Gambaryan, is also facing trial on charges of tax evasion, money laundering, and foreign exchange contravention.
Zhao had pleaded guilty to violating the Bank Secrecy Act last November. However, his attorneys argued he should serve no jail time, citing the fine he paid and his “extraordinary acceptance of responsibility.” Instead, they suggested he be sentenced to probation, which could include home confinement at his home in Abu Dhabi.
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The sentencing memo
The DOJ in the sentencing memorandum said:
“Given the magnitude of Zhao’s willful violation of U.S. law and its consequences, an above-Guidelines sentence of 36 months is warranted.
- “That sentence, together with the agreed $50 million fine, is sufficient but not greater than necessary to balance the relevant 18 U.S.C. 3553(a) factors and achieve the goals of sentencing.
- “The Court should impose the unlawful-proceeds Guidelines enhancement The Court should impose the two-level enhancement in USSG 2S1.3(b)(1) because a preponderance of the evidence shows that Zhao knew or believed that at least some funds his company processed were proceeds of unlawful activity.”
Much of the filing echoes arguments made by the DOJ when it first announced charges against Binance and Zhao last year, pointing to how the exchange operated within the U.S.
The filing also looked at how the Sentencing Guidelines address Bank Secrecy Act violations, saying they “are not designed to adequately punish either misconduct on this scale or misconduct that harms U.S. national security.”
- “The sentence in this case will not just send a message to Zhao but also to the world. Zhao reaped vast rewards for his violation of U.S. law, and the price of that violation must be significant to effectively punish Zhao for his criminal acts and to deter others who are tempted to build fortunes and business empires by breaking U.S. law,” the filing said.
Zhao originally faced up to 18 months in prison under the terms of his plea agreement. The DOJ argued in Tuesday’s filing that “the scope and ramifications of Zhao’s misconduct were massive,” and so “an upward variance is appropriate here.”
- “In part, because Zhao failed to implement an effective AML program at Binance, illicit actors used Binance’s exchange in various ways, including operating mixing services that hid the source and ownership of cryptocurrency; transacting in illicit proceeds from ransomware attacks; and moving proceeds of darknet market transactions, exchange hacks, and various internet-related scams,” the filing said, pointing to fund movements from darknet markets and crypto mixers.
More insights
Zhao was originally set to be sentenced in late February, but the hearing was postponed by mutual agreement to April 30. He has not been able to return to Dubai, where his partner and some of his children live, since he first appeared in federal court in Seattle, Washington last year.
Binance, the world’s largest crypto exchange, pleaded guilty to charges of its own at the same time as Zhao, agreeing to a massive $4.3 billion fine and that it would report to a court-appointed monitor. The monitor has yet to be appointed.
In Nigeria, the government has also accused Binance of aiding money laundering and influencing the country’s currency movement. This led to the arrest of two officials of the company who came to Nigeria to address the issues.
Thereafter, one of the officials, Nadeem Anjarwalla, escaped from custody to Kenya. Reports say he has been arrested in Kenya and processes of extraditing him to Nigeria to face trial are underway.
Before that, the Nigerian government had barred access to Binance’s website, forcing many Nigerian users of the platform to use VPN to access it.
