To: Interested Parties
From: Dennis Kelleher, President and CEO
(Media Contact: Anton Becker, Dir. of Communications, abecker@bettermarkets.org)
Date: April 29, 2024
Re: Sentencing of Binance Founder, Owner, and Former Chief Executive Officer for Central Role in Violating the Bank Secrecy Act
Binance, the largest crypto exchange in the world, plead guilty on November 21, 2023 to, among other things, failing to monitor and stop money laundering, including, according to the Treasury Department, failing to report “well over 100,000 suspicious transactions” linked to ransomware attacks, child sexual abuse, large-scale hacks, the narcotics trade, terrorists organizations including Hamas, Palestinian Islamic Jihad, al-Qaeda and ISIS, and sanctioned jurisdictions like Iran, North Korea, Syria, and Russia. For that, it was fined $4.3 billion, which it could easily pay, and required to have an independent monitor for up to five years.
Notwithstanding the shocking, years long, egregious crimes Binance’s money laundering enabled and facilitated, the Department of Justice (DOJ) charged just one person, Binance’s Founder, Owner, and former Chief Executive Officer, Changpeng Zhao (CZ), and just one count of violating the Bank Secrecy Act for failing to ensure Binance implemented an effective anti-money laundering compliance program. Inexplicably, DOJ did this even though there was overwhelming evidence that CZ was abetted by dozens if not hundreds of Binance staff and that CZ, from the beginning of Binance’s existence, willfully, knowingly, and intentionally designed and ran Binance to be a crypto money laundering superstore for the most despicable global criminals. For example, one of Binance’s compliance employees wrote “we need a banner ‘is washing drug money too hard these days – come to Binance, we got cake for you.’”
Thus, it was no surprise that U.S. officials, from the Attorney General to the Treasury Secretary, stressed the gravity of the violations in their public comments. They also highlighted the importance of imposing heavy sanctions given the massive wealth CZ acquired and the need to curb the rampant crime wave underway in the world of crypto. As the government stated,
“[CZ] reaped vast rewards for his violations 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.”
However, the punishment imposed simply does not fit the crime. In fact, the settlement is pathetic compared to the crime wave and the wealth accumulated from that criminal conduct. For example, CZ’s total net worth is an estimated $42.9 billion and he is number 29 on the Bloomberg Billionaires Index as of April 27, 2024. His wealth increased by $25 billion in 2023 alone. Yet, for his crimes, DOJ fined him just $50 million, or just .1% of his net worth. No one can seriously think that is “significant” or that it will “effectively punish Zhao for his criminal acts” or “deter others,” as DOJ, Treasury and other government officials claimed.
Having pled guilty to the minimalist charge and received a laughably small fine, CZ will learn his sentence tomorrow, Tuesday, April 30, 2024, when he goes before the United States District Court for the District of Washington. Although the federal sentencing guidelines indicate a maximum of just 18 months in prison for such violations, the DOJ recommended In its sentencing memorandum that CZ be sentenced to an above-guidelines term of 3 years in prison, pointing out that he “made a business decision that violating U.S. law was the best way to attract users, build his company, and line his pockets.” However, CZ’s lawyers, in their sentencing memo seeking probation, pointed out that the government only charged CZ with a very minor offense:
“[CZ] has not plead guilty to – nor has the government alleged that he committed – any crime involving money laundering, fraud, theft, market manipulation, or any comparable form of unlawful conduct.”
In fact, the minimal charge is so light that CZ’s lawyers detailed in their sentencing memo that there is no precedent for a prison sentence at all under these circumstances.
However, even if CZ is sentenced to 3 years in prison tomorrow, it will be woefully inadequate given the scope of the intentional global criminal conduct committed by Binance at the direction and under the control of CZ. According to the facts alleged by the federal authorities, CZ set up and implemented a global criminal enterprise that saw the laundering of money from the most serious global crimes and criminals. Perhaps even more shockingly, the DOJ agreed to a minimal bar that will prohibit CZ from operating Binance for only three years—setting up the possibility that in three years’ time, CZ may go from a jail cell back to a corner suite—an alarming prospect given the gravity and scope of CZ and Binance’s crimes. Yes, the feds have the right to have a monitor at Binance, but even that is for no longer than five years and it is decidedly unclear how effective even that will be.
For example, DOJ allowed every single senior executive and employee other than CZ to remain at Binance, including CZ’s hand-chosen successor CEO, Richard Teng. Given the length and scope of the crimes committed by Binance, there has to be dozens if not hundreds of other Binance employees who participated in the criminal enterprise and every one of them entirely avoided criminal charges and punishment for their crimes. Thus, all of the very same people who engaged in these outrageous crimes for years are all still at Binance, which the new CEO bragged about just days after the settlement was announced: “Our core team remains intact. That’s very important.” While it might be for Binance’s business purposes, it certainly isn’t for punishing and deterring criminal conduct.
As the head of a crypto market maker who uses the Binance exchange was quoted in the Financial Times,
“I’m not really worried about Binance…. Everyone saw it coming [the DOJ penalty and CZ stepping down]. I was expected worse than that, they could have added one zero to the deal [i.e., $43 billion fine], hey could have really have gone after all the executives and tried to push everybody in jail.”
Moreover, the new CEO, under pressure from the feds, indicated he would establish a traditional corporate structure common among legitimate businesses, including naming a headquarters and establishing a board of directors. Five months after the plea deal, on April 1, 2024, he did announce Binance’s first board of directors, but it has a majority of insiders and questionably qualified outsiders. Additionally, the new CEO still refuses to disclose where Binance’s global corporate headquarters is located. That is not how a legitimate business interested in legal compliance and proper corporate governance acts.
Corporations do not commit crimes; the people who work for them do. The only way to actually punish and deter crime is to meaningfully and personally punish those individuals who are actually involved in the wrongdoing, especially officers and executives like CZ and his fellow executives. Clawing back all their compensation, barring them permanently from the industry, and sending them to prison simply has to be the expectation if not the norm for breaking the law. That is the only way to actually deter corporate white-collar lawbreaking in the financial industry and end the crime spree in finance. While the prosecution of CZ and shutting down Biance’s criminal money laundering and sanctions evasion is better than nothing, it really merited much, much more.
However, one thing is for certain, though: Even 3 years in prison for CZ would be disproportionally short for the crimes committed, especially if compared to FTX’s former CEO Sam Bankman-Fried. SBF received a sentence of 25 years in prison for defrauding billions of dollars from investors. No question SBF’s crimes inflicted widespread damage, hurt millions of hard-working people, and deserved to be punished severely. However, they pale in comparison to CZ’s crimes of effective aiding and abetting of narcotics trafficking, terrorist financing, sanction evasion, sex trafficking, and ransomware extortion. Yet, at most, CZ will serve about an eighth of SBF’s sentence.
Additional Crypto Related Resources from Better Markets, Including Additional Information on Changpeng Zhao and Binance’s Illegal Conduct
Better Markets regularly writes about crypto related issues, tracks developments, and warns of the dangers that crypto offerings pose to investors. For more information, please see the Better Markets website.
