The Department of Justice wants Binance founder and former CEO Changpeng Zhao locked up for three years and to pay a $50 million fine for violating the Bank Secrecy Act, which he pleaded guilty to in November.
The sentence, per the DOJ sentencing memo Monday, “will not just send a message to Zhao but also to the world.” Zhao’s Binance ran afoul of U.S. anti-money laundering laws, and Zhao, in the meantime, “reaped vast rewards” because of that, the DOJ said.
He originally faced 12 to 18 months in prison, per the terms of his plea agreement. But more time is appropriate, according to the DOJ, due to the “massive” scope of Zhao’s misconduct.
“Binance engaged in transactions orders of magnitude larger than the BSA originally contemplated for [money services businesses] and well beyond what the Guidelines address,” the DOJ wrote.
“Zhao and Binance specifically targeted U.S. users as part of Binance’s growth strategy, knew that this choice subjected Binance to U.S. laws, but for years deliberately ran the company in violation of U.S. law,” prosecutors wrote of Zhao’s crimes. “As Zhao admitted, breaking U.S. law was critical to the company’s success and profitability. Zhao bragged that if Binance complied with U.S. law, it would not be ‘as big as we are today’ and ‘would also not have had any US revenue we had for the last 2 years.’”
His punishment must be significant enough to punish him “for his criminal acts and to deter others who are tempted to build fortunes and business empires by breaking U.S. law,” they wrote.
Zhao’s attorneys, however, suggest he serve probation in Abu Dhabi, where his family lives, noting that “[n]o defendant in a remotely similar BSA case has ever been sentenced to incarceration. Mr. Zhao should not be the first.”
“Mr. Zhao was not indicted, was not extradited, did not put the government to its burden of proof at trial, and never wavered in his steadfast commitment to accepting responsibility,” they added.
Zhao had already agreed to pay a $50 million fine. His former company, for its part, paid $4.3 billion in penalties when he stepped down from the company in November. Richard Teng replaced him as CEO.
Zhao will be sentenced on April 30 in federal court in Seattle.
In New York on Friday, the Securities and Exchange Commission filed a motion requesting $5.3 billion from Do Kwon, founder of Terraform Labs, who it sued last year for securities fraud following the implosion of the Terra ecosystem which is credited for kicking off much turmoil in the crypto market in 2022.
He and his company were found liable in a civil trial earlier this month.
As the DOJ indicated in its sentencing memo for Zhao, the SEC said it means to make a message out of Kwon’s punishment.
“Defendants have not shown remorse for their conduct, nor can there be any doubt that they are in position where additional violations are not only possible but likely are already occurring,” said the SEC filing, according to Cointelegraph.
“The Court should send an unequivocal message that this sort of brazen misconduct, and Defendants’ misbegotten attempt to excuse their behavior by crafting new rules and standards of behavior for crypto markets in contravention of the federal securities laws ... will not be tolerated,” the regulator wrote.
Kwon did not attend his own trial, as he is currently on house arrest in Montenegro. He tried, and failed, to have the lawsuit against him tossed in October.
In its sentencing memo, Terraform suggested a civil penalty of no more than $3.5 million. Kwon, for his part, suggested a penalty of about $800,000.
