Changpeng Zhao, founder of the giant cryptocurrency exchange Binance, should go to prison for three years after violating the law “on an unprecedented scale” and pleading guilty to a money laundering violation, federal prosecutors wrote in a court filing on Wednesday.
Defense lawyers responded in their own memo that Mr. Zhao, 47, should receive no prison time and face a sentence of probation, arguing that he had accepted responsibility for his crime and had shown a commitment to philanthropy.
A federal judge in Seattle, Richard A. Jones, will evaluate those conflicting recommendations at a sentencing hearing for Mr. Zhao on Tuesday. His sentencing will be the latest milestone in a series of criminal proceedings that have targeted some of the most powerful figures in the global cryptocurrency industry.
Just 18 months ago, Zhao, who was high up as CEO of Binance, helped set off the chain of events that led to the collapse of FTX, Binance’s biggest rival, and the jailing of FTX founder Sam Bankman-Fried , who was sentenced. to 25 years for fraud. Now Mr. Zhao faces his own prison sentence after reaching a deal with prosecutors in November, admitting that he failed to establish an adequate system at Binance to prevent money laundering.
Under federal guidelines, that crime carries a sentence of 12 to 18 months, prosecutors wrote in their memo. They noted that the U.S. probation department had recommended five months behind bars for Mr. Zhao. But the government is seeking a three-year sentence, according to the memo, because of the “scope and ramifications” of Mr. Zhao’s behavior.
As the founder of Binance, Zhao was once arguably the most powerful executive in the cryptocurrency industry. At times, Binance processed up to two-thirds of all crypto transactions. Zhao has a fortune valued at $33 billion, according to Forbes.
But for years, it was dogged by accusations that Binance had broken the law to expand its business around the world. In November, the company agreed to pay $4.3 billion in fines and restitution to the U.S. government, resolving allegations that it violated economic sanctions against Syria, Cuba and Iran while allowing criminal activities to flourish on its platform.
Separately, Mr. Zhao pleaded guilty to failing to maintain an adequate anti-money laundering program at Binance. As part of the settlement, he agreed to pay a $50 million fine and resign as CEO of Binance. He was replaced by Richard Teng, a former Singapore regulator who had been groomed to succeed him.
In court documents, Zhao admitted to prioritizing Binance’s growth over its compliance with the Bank Secrecy Act, which requires companies to avoid doing business with criminals or people facing financial sanctions. He told Binance employees that it was “better to ask for forgiveness than permission,” according to court documents, and allowed Binance customers to create accounts without sharing the type of detailed personal information that financial services companies typically require.
“Zhao’s sentence should reflect the seriousness of his crimes,” prosecutors wrote in Wednesday’s filing. “Zhao and Binance put American customers, the American financial system, and American national security at risk.”
In their memo, Mr. Zhao’s lawyers argued that he deserved leniency and emphasized that he came to the United States from his home in the United Arab Emirates to plead guilty. They wrote that while Mr. Zhao had admitted a breach at Binance, he had not pleaded guilty to engaging in money laundering, fraud or theft.
“Mr. Zhao is not a symbol. He is a devoted father, a philanthropist,” the defense memo said. “He has already shown remorse for his wrongdoing and, more importantly, has made amends.”
The memo included letters from friends of Mr. Zhao and Binance employees, some of whom wrote that the company was working hard to cooperate with law enforcement organizations around the world. Defense lawyers called Zhao “frugal and humble,” saying he intended to donate 90 to 99 percent of his wealth.
Among the authors of the letters were Mr. Zhao’s two adult children, both students at American universities, and Max Baucus, a former U.S. senator and ambassador to China. In his letter, Baucus, who worked as an advisor to Binance, described Zhao as “almost a genius” and “one of the most decent people I have ever met.”
“My impression was that Binance grew exponentially and became somewhat unwieldy,” he wrote. “She now clearly understands that she should have acted much more diligently.”
Since his guilty plea, Mr. Zhao has remained in the United States, after Judge Jones denied his request to return home to his family in Dubai before his sentencing. Prosecutors said in the memo that he had traveled freely throughout the country, including to Telluride, Colorado, and Los Angeles.
