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Ex-Binance CEO “CZ” Receives 4-Month Prison Sentence

CZ recieves four month sentence
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Changpeng Zhao, more famously known as “CZ” and the founder of Binance, has been sentenced to a four-month prison term for violations of the Bank Secrecy Act, anti-money laundering regulations, and sanctions. This comes after an initial rumored 36-month prison sentence. This significant reduction in his sentence relates to his guilty plea and cooperation with authorities, alongside the substantial penalties imposed on Binance itself.

Timeline of Events

  1. March 2023: The Commodity Futures Trading Commission (CFTC) initiates legal action against Binance, alleging evasion of U.S. law​.
  2. June 2023: Binance faces further legal challenges. It fails to obtain a virtual asset service provider license in the Netherlands and comes under investigation in France. Additionally, the SEC files a lawsuit against Binance, accusing it of securities law violations​.
  3. July 2023: An exodus begins within Binance’s U.S. leadership, with four senior members leaving the company​​. Information from previous Binance U.S key members proves they knew they were not doing things correctly.
  4. August 2023: The Department of Justice (DOJ) considers fraud charges against Binance but opts for fines and non-prosecution agreements to avoid a run on the exchange​​.
  5. October 2023: Binance takes measures to block SEC access to its documents and seeks to dismiss both the CFTC and SEC lawsuits against it​​. This ultimately fails
  6. November 2023: Binance and CZ reach a massive settlement with the U.S. government. CZ pleads guilty to charges related to anti-money laundering and sanctions violations and agrees to step down as CEO. Binance agrees to pay approximately $4.3 billion to resolve the investigations by the DOJ, the CFTC, the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), and the Office of Foreign Assets Control (OFAC)​.
  7. November 21, 2023: Official guilty pleas are entered, and Binance is hit with one of the largest corporate penalties in U.S. history. Richard Teng replaces CZ as CEO​. Following the guilty pleas and leadership changes, a judge denies CZ’s request to leave the U.S. prior to his sentencing, citing his substantial net worth and ties to non-extraditing countries, and requires him to remain in the continental U.S. until his sentencing​.
  8. April 30, 2024: CZ’s sentencing takes place. He receives a reduced sentence of four months in prison, significantly less than the 36 months initially recommended by the DOJ. This reduction reflects his cooperation with authorities and the significant financial penalties already imposed on Binance.​

On April 30th, 204, CZ’s sentencing took place in Seattle, presided over by U.S. District Judge Richard Jones. During the court proceedings, Judge Jones remarked to Zhao;

“You had the wherewithal, the finance capabilities, and the people power to make sure that every single regulation had to be complied with, and so you failed at that opportunity,”

CZ expressed his remorse, stating, “I’m sorry,” and acknowledged his shortcomings in fulfilling his legal obligations.

“I believe the first step of taking responsibility is to fully recognize the mistakes. Here I failed to implement an adequate anti-money laundering program… I realize now the seriousness of that mistake,”

Changpeng Zhao

As part of a settlement with the U.S. government last November, CZ stepped down as CEO of Binance. Despite his resignation, he reportedly retains a 90% stake in the company. Additionally, The U.S. has ordered Binance to pay a combined total of $4.3 billion in fines, with CZ agreeing to a personal fine of $50 million.

Binance additionally faced significant legal scrutiny when it was discovered that the platform had allowed darknet users to utilize the website in their operations. According to the IRS, Binance had not implemented adequate AML and KYC measures. Why any Darknet vendor would use Binance is beyond us, this is a clear no-no for OpSec.

This enabled illicit activities, including transactions from darknet markets. These oversights allowed hundreds of millions of dollars in potentially illegal proceeds to flow through the exchange without adequate oversight or tracking. This failure to prevent the misuse of the platform for darknet transactions was a critical component of the charges against Binance and its founder, Changpeng Zhao, which ultimately led to severe financial penalties and Zhao’s criminal sentencing​​.

While CZ is expected to be released in a few months, marking a critical moment for the crypto industry. While Binance managed to evade more serious lawsuits, it made strides in improving its compliance programs. While this may be good for the industry, Bitcoin has fallen 20% from its all-time high, currently trading below $57,000.