Government says CZ threatened US security, recommends doubling Guideline sentence

The government says Zhao “willfully” and strategically put US national security at risk in order to “line his pockets”

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Binance co-founder Changpeng Zhao | Ben McShane/Web Summit via Sportsfile/"BE6_1549″ (CC license)

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Prosecutors have asked the court to sentence Binance founder Changpeng “CZ” Zhao to 36 months in prison for violating the Bank Secrecy Act. Zhao’s team argues that probation alone — ideally with conditions that allow him to return to his home in the UAE — is appropriate. 

The government says that Zhao “willfully” and strategically defied US laws in order to “line his pockets” and grow his crypto exchange. His negligence threatened the security of the US, and he therefore deserves an “above-Guidelines” sentence of three years behind bars, prosecutors wrote in their memo Tuesday. 

“Binance’s decision not to implement an effective AML program as required by US law, despite its reliance on US customers to provide liquidity for the exchange, caused violations of comprehensive US sanctions imposed to protect against the ‘unusual and extraordinary threat to the national security, foreign policy and economy of the United States’ presented by the actions and policies of the Government of Iran,” government lawyers wrote. 

Read more: Binance, Zhao ‘deliberately’ violated US law, SEC argues

The defense submitted more than 450 pages to Judge Richard Jones late Tuesday evening hours after the Government filed their recommendations. The defense memo includes a letter from Zhao himself and 161 supporters. 

The defense argues Zhao faces unfairly harsh conditions if he is incarcerated. Given that he is not a US citizen, he’s ineligible for a minimum-security facility, his team wrote. 

“The confinement conditions are appreciably more restrictive, there are fewer work and program opportunities, and the inmate population as a whole is more dangerous in low-security facilities than in minimum-security facilities,” Zhao’s lawyers wrote in Tuesday’s memo. 

Read more: Judge orders former Binance CEO Changpeng Zhao to ‘surrender’ Canadian passport

Zhao’s cooperation with the US government should not go unnoticed, the defense added. 

Zhao is scheduled to be sentenced in Washington state on April 30. Zhao entered into a guilty plea agreement in November, admitting he failed to maintain an effective anti-money laundering program at Binance. 

“There is no excuse for my failure to establish the necessary compliance controls at Binance. I wish I could change that part of Binance’s story,” Zhao wrote in his letter to Jones. 

“I originally became interested in cryptocurrency because of the inclusiveness and equal opportunity it provides to everyone in the world,” he added, highlighting his philanthropic efforts he would like to continue, ideally not from prison. 

In November, prosecutors hinted that they may vye for a heavier sentence than the 18 months stipulated by federal guidelines, writing to the court that “the United States is free to argue for any sentence up to the statutory maximum of ten years.” 

Zhao has been ordered to stay in the US until the sentencing on a $175 million personal recognizance bond. 

Binance in November agreed to settle charges with the US government for $4.3 billion, including a $2.5 billion forfeiture and a criminal fine of $1.8 billion. 

​​“Almost two years after Binance’s founding, Zhao told senior management that the US market represented 20% to 30% of the company’s potential revenue,” Attorney General Merrick Garland said when the settlement was announced.“ Serving these US customers meant that Binance was a US financial institution. US financial institutions must comply with US law, Zhao and other senior management at Binance understood this.”


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