Author: Wen Shijun
Editor: Wang Weikai
Produced by: Prism·Tencent Xiaoman Studio
On the morning of April 30th local time, the former "richest Chinese man"CZ was sentenced to four months in prison by the Seattle Federal Court in the United States for failing to comply with anti-money laundering regulations.
Before hearing about the trial, CZ, who was wearing a blue suit and a light blue tie, was very nervous. The media at the scene described him as "sitting on pins and needles." After all, the maximum sentence in the plea agreement he signed with the Ministry of Justice in November last year was 18 months. On April 23, shortly before the trial, the Ministry of Justice raised its request for a sentence to three years.
The court did not immediately detain CZ. After the verdict, CZ posted on social media to thank all parties for their support and said he "will focus on the next chapter of my life: education."
The United States v. Changpeng CZ: An American-style lawsuit between officials and citizens
CZ, 47, is the founder and former CEO of Binance.
He was born in Jiangsu, China, and is a citizen of Canada and the United Arab Emirates. In 2021, CZ surpassed a number of well-known old-line tycoons with a fortune of US$94.1 billion (about RMB 681.3 billion) to become the richest Chinese in the world. This was only four years after he founded Binance.
After experiencing the market volatility and regulatory pressure of cryptocurrencies, CZ's current wealth is $39.7 billion - still the richest man in Canada and 38th on the global rich list. This wealth scale is on the same level as Stephen A. Schwarzman, a senior Wall Street tycoon and founder of Blackstone.
Binance is the world's largest cryptocurrency exchange, with a market share of more than 2/3 at its peak and still more than 50% at present. In the first quarter of 2024, the total spot trading volume of global cryptocurrency exchanges was 4.29 trillion US dollars. In addition to trading services, Binance also issues its own cryptocurrency BNB (Binance Coin), and the current total market value of BNB fluctuates around 90 billion US dollars.
Countries such as Singapore and the United Arab Emirates have a relatively open and even welcoming attitude towards cryptocurrencies.
But for the superpower United States, it is difficult to make a quick black-and-white decision. Whether it is from the political tradition of Washington or the intertwined interests of Wall Street and Silicon Valley, the United States' attitude towards cryptocurrencies is competitive and ambiguous.
With CZ being sentenced this time, the attitude has become clearer: it is not prohibited, but stricter supervision is needed.
The United States is the most important market for cryptocurrencies, with a number of heavyweight cryptocurrency players active in the country. As early as 2012, the world's second largest cryptocurrency exchange, Coinbase, was born in the United States. The latter's listing on the Nasdaq in April 2021 is considered a milestone in the "legalization" of cryptocurrency trading in the United States.
Binance initially provided services to U.S. users through its global platform. However, as the U.S. continued to increase its regulation of cryptocurrencies, Binance launched an independent platform, Binance.US, in 2019, which is a trading platform specifically for U.S. customers.
Binance US is trying to seek compliance development under the US regulatory system. In May 2021, shortly after the Coinbase IPO, Binance invited Brian P. Brooks, former acting director of the Office of the Comptroller of the Currency (OCC), to serve as CEO of Binance US. However, after only three months in office, Brooks resigned due to a conflict with CZ.
But the core problem is the decentralized nature of cryptocurrency itself.
For many of Binance's US customers, anonymous transactions and avoiding regulation are the reasons why they "believe" in and use cryptocurrencies. In March 2023, in response to an investigation by three US senators, Binance officially admitted that "the removal and restriction of US users was implemented gradually, and this measure was not perfect in the first few years of implementation."
In fact, for a long time, Binance's American users have been using two platforms: Binance US above the ground, and Binance underground - the latter is outside the US regulatory system.
The prosecution of CZ’s criminal case is led by three major departments under the U.S. Department of Justice: the Money Laundering and Asset Recovery Section (MLARS) of the Criminal Division, the Counterintelligence and Export Control Section (CES) of the National Security Division, and the U.S. Attorney’s Office for the Western District of Washington.
The U.S. Department of Justice alleged that CZ was aware of and even encouraged this, and that "Binance employees also called U.S. VIP customers to encourage them to provide information about themselves being outside the United States." During the trial on April 30, the presiding African-American federal judge Richard A. Jones also mentioned that prosecutors often quoted a sentence CZ said to Binance team members: "It's better to ask for forgiveness than to ask for permission."
It is worth mentioning that the Department of Justice plays a very important role in the American political system. In the cabinet, the Secretary of State, the Secretary of Defense, the Attorney General, and the Secretary of the Treasury are collectively known as the "Big 4" and implement the core policies of the president and the ruling party.
It can be said that the trial of CZ is actually the United States' trial of the decentralization of cryptocurrency. After all, the most "terrible" thing about cryptocurrency is its impact on the US dollar system - many cryptocurrency supporters believe that they are reshaping the world's monetary system and establishing a decentralized new world order.
All of this makes the lawsuit "United CZ v. Changpeng Zhao" even more significant as a benchmark.
According to the verdict, CZ will serve four months in SeaTac Federal Prison in the United States. Source: Court verdict document
The highest fine in history, but still not free from jail
On November 21, 2023, CZ signed a plea agreement with the U.S. Department of Justice. However, his attitude of "confession and leniency" and acceptance of a huge fine did not completely save him from prison.
The plea agreement obtained by the author of "Prism" shows that CZ acknowledged a series of criminal charges against him by the US Department of Justice, including violating the anti-money laundering provisions of the US Bank Secrecy Act.
The plea agreement mentioned that from June 2017 to 2022, Binance had more than one million U.S. users. These U.S. users made more than 20 million deposits and withdrawals totaling $65 billion, and more than 900 million cryptocurrency spot transactions totaling $550 billion, which "helped Binance grow into the largest cryptocurrency exchange" in the U.S. market.
The plea agreement emphasizes that as a money services business (MSB) institution doing business in the United States, Binance did not apply for an MSB license from the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
As the CEO and daily manager of Binance, CZ"willfully" failed to conduct effective transaction monitoring for quite a long time, and condoned Binance's failure to implement effective customer identification (KYC) and anti-money laundering (AML) measures.
"The defendants placed Binance's growth and profits above compliance and above U.S. law," the plea agreement reads, adding that CZ believed that asking customers to provide their identity information would keep them out.
Because of this, Binance failed to effectively restrict U.S. users from trading with users in U.S.-sanctioned regions, such as $890 million in transactions with Iranian users and millions of transactions between users "including Cuba, Syria, and Crimea, Donetsk and Luhansk in Ukraine," from which "Binance earned huge fees."
As part of the plea agreement, CZ had to pay a $50 million fine in his personal name, resign as Binance CEO, and was not allowed to participate in any Binance activities for three years. Everything was prepared in advance. On the day CZ signed the plea agreement, he announced his successor on social media - Singaporean Richard Teng.
“Today, I resigned as CEO of Binance. Admittedly, emotionally, it’s not easy to let go. But I know it’s the right thing to do. I made mistakes, and I must take responsibility. This is what’s best for our community, for Binance, and for me,” he wrote in the social media message.
Deng Weizheng joined Binance in 2021 to be responsible for Singapore business. In May 2023, he was appointed as the head of all regions of Binance except the United States. Before joining Binance, he held important positions in financial regulatory departments in Singapore and the United Arab Emirates. During the COVID-19 pandemic, CZ lived in Singapore for a long time.
On April 9, 2024, Binance's current CEO, Weizheng Deng, delivered a speech at the Paris Blockchain Week Summit in France. Source: Visual China
As part of the overall guilty plea, Binance also admitted guilt at the corporate level. Involving multiple U.S. government and regulatory agencies:
According to the U.S. Treasury Department, on November 21, 2023, the same day that CZ signed the plea agreement, Binance reached a settlement with the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) for "failure to comply with anti-money laundering and sanctions obligations."
The settlement fines were $3.4 billion and $968 million, respectively - not only setting records for fines for the two departments, but also becoming the largest settlement amounts in the history of the U.S. Treasury Department.
The above settlement also requires that the U.S. Treasury Department retain access to Binance accounts and systems for five years. Binance must improve its compliance during this period (a $150 million pre-fine was agreed for this purpose, which will be executed if Binance fails to fulfill its compliance commitments) and "completely withdraw" from the United States within five years.
In March 2023, the U.S. Commodity Futures Trading Commission (CFTC) also filed a civil lawsuit against Binance.
According to the information disclosed by the committee, on November 21, 2023, the two parties also reached a settlement agreement: Binance will hand over $1.35 billion of "illegal income" to the committee and pay an equal fine of $1.35 billion. At the same time, CZ will personally pay an additional $150 million fine to the committee.
This package of settlements does not include the 13 charges filed by the U.S. Securities and Exchange Commission (SEC) against Binance for violating U.S. securities laws - the lawsuit is still ongoing.
For CZ, losing money is of course a way to avoid disaster. The plea agreement mentioned that the crime CZ was involved in could be sentenced to up to 10 years in prison. But as an exchange, the plea agreement also made it clear that if the court sentenced a sentence not exceeding 18 months under the guidance of the U.S. Sentencing Guidelines, CZ would give up the appeal.
However, it is worth noting that the plea agreement shows that the two parties reached an agreement based on Rule 11(c)(1)(A) of the Federal Rules of Criminal Procedure. Under this clause, the defendant signed a plea and the prosecutor promised not to add new charges to the defendant beyond the agreement, but "the court may accept the agreement, reject the agreement or postpone the judgment."
As the plea agreement states, "no one promises or guarantees what sentence the court will impose."
The signing page of the plea agreement between CZ and the U.S. Department of Justice, including the signatures of CZ and his top lawyers Benjamin Naftalis and William Buck. Source: CZ plea agreement
The cat-and-mouse game between the crypto giants and Uncle Sam
Plea agreements are the norm in U.S. judicial practice. According to data from the American Bar Association, in recent years, 98% of criminal cases in federal courts have ended in the form of plea agreements reached through plea bargaining.
But the difference is that in this case of "United States v. CZ", the defendant is a crypto tycoon who has become rich by riding the wave of technology and taking advantage of human nature, and the plaintiff is the political and legal machine of the world's most powerful country. This cat-and-mouse game is destined to be difficult.
In fact, in the months after the signing of the plea agreement, the confrontation between the prosecution and the defense has been going on:
After signing the plea agreement, the first issue to be addressed was bail. The initial bail terms obtained by the author of "Prism" showed that CZ could be temporarily free at the cost of a personal bail of US$175 million and two guarantors, who made guarantee commitments of US$250,000 and US$100,000 respectively.
At the same time, CZ is required to deposit another $15 million in a designated trust account, which will be confiscated if he violates the terms of his bail. For CZ, who is as rich as a country, even if the previous fine of billions of dollars is added, it is just a flesh wound - it hurts a little.
The initial bail terms did not restrict CZ from leaving the United States, but required him to report any changes to his address and phone number and to return to the United States 14 days before the formal sentencing.
CZ"voluntarily" flew to the United States to sign the plea agreement. He originally planned to leave the United States and return to his home in the UAE immediately after signing. Japanese-American magistrate judge Brian A. Tsuchida agreed to his request to leave the United States, but the U.S. Department of Justice immediately asked African-American federal judge Richard Jones to review the decision and require CZ to stay in the United States.
The core reason put forward by the Ministry of Justice is that the United States and the UAE do not have an extradition treaty, there has been no case of the UAE extraditing its citizens to the United States, and CZ’s assets are all outside the United States.
On November 24, 2023, CZ filed a defense to Judge Jones through his lawyer and played the emotional card: "A few months ago, he and his partner just welcomed their third child" and "Allowing Mr. Zhao to stay in the UAE will allow him to take care of his family and prepare for his return to the United States to accept the verdict."
But Judge Jones rejected CZ's request to leave the country.
The "partner" refers to He Yi. Born in Sichuan, China in 1986, He Yi was a host on Travel Satellite TV before entering the cryptocurrency industry and meeting CZ. He Yi is one of the co-founders of Binance and is known as the "Crypto Queen."
Although the two have always had a very close working relationship, it was not until early 2023 that it was publicly reported that they had two children.
The Wall Street Journal once quoted a source as saying: "In the absence of CZ, his partner He Yi is the largest shareholder of Binance, taking control of the company's marketing and investment departments."
On December 22, 2023, CZ wrote to the court again, requesting to return to the UAE for four Sundays to visit his family who were about to undergo surgery. In exchange, CZ proposed to pledge all of his shares in Binance US, which were worth about $4.5 billion. But Judge Jones still did not agree.
On February 12, 2024, the court announced that the trial date originally scheduled for February 23 was postponed to April 30.
On February 23, prosecutors from the Ministry of Justice again asked the court to tighten bail restrictions on CZ: he was required to surrender his Canadian passport and could not change his residence in the United States without permission. Even if he traveled in the United States, he had to notify prosecutors three days in advance. In fact, he did use this time to visit many places in the United States, including the ski resort town of Telluride, Colorado.
The bail clause is just a small push, the core is the game of prison sentence. CZ and his legal team have been trying to shorten the prison sentence and obtain probation.
There are indeed precedents for suspended sentences: In May 2022, Arthur Hayes, the African-American post-85s co-founder and former CEO of the cryptocurrency exchange BitMEX, was charged with violating anti-money laundering regulations after he surrendered himself. He was ultimately sentenced to only six months of home confinement and two years of probation.
But things are not that simple. Another recent case inevitably made CZ worried.
More than a month ago, on March 28, Sam Bankman-Fried, the post-90s co-founder and CEO of FTX Exchange, known as the “Jewish king of crypto,” was sentenced to 25 years in prison for massive fraud.
The final pressure from the prosecution led to 161 letters of appeal
On April 23, just before the trial, prosecutors submitted a sentencing memorandum to the court.
The memo obtained by the author of "Prism" shows that the prosecutor used harsh words and pointed directly to CZ's subjective intent: Binance grew in the "Wild West" model (the pioneering era of rampant crime in the western United States), and "the business decisions made by CZ are the best way to acquire users, develop companies, and fill wallets in violation of US law."
Prosecutors believed that the 18-month sentence was "insufficient to reflect the seriousness of Zhao's crime."
The memo emphasized that "Zhao has reaped huge rewards for violating U.S. law, and the cost of this violation must be huge" in order to "deter others who attempt to build wealth and business empires by violating U.S. law."
As a national lawsuit, the tone of the U.S. Department of Justice's recommendation also matches it: "The United States recommends that the court impose a sentence of 36 months in prison, which is above the standard of the U.S. Sentencing Guidelines."
Before the verdict, the prosecution requested a sentence twice the standard, which was seen by outsiders as a final effort to exert pressure.
On April 23, 2024, prosecutors from the Ministry of Justice submitted a recommendation to the court requesting that CZ be sentenced to 36 months in prison. Source: Sentencing Memorandum
CZ's side quickly "retaliated". Shortly after the release of this memo, CZ's apology letter to Judge Chad Jones and 161 joint letters of appeal began to circulate online. These letters were actually completed in February 2024, when the prosecution might seek a higher sentence.
In the letter, CZ expressed his hope for a suspended sentence. He apologized again and took full responsibility.
His regret also overflowed from the paper: "Words cannot explain how much I regret the choices I made, which led me to appear in court (for trial)." At the trial on April 30, he said "I'm sorry" and he wanted to be responsible for the "mistake", but before stepping down as CEO, he had done everything possible to promote compliance and cooperate with the US government.
He said at the trial that he wanted to create an online education platform for poor children. In his previous appeal letter, he also mentioned that after leaving the crypto, the blockchain + biomedicine industry is his next goal.
161 joint appeals, including family, friends, political and business leaders, colleagues, industry experts, Binance angel investors, Binance users, etc. Family members are at the top of the list, and He Yi's name appears again, ranking second. The first is CZ's sister, former Morgan Stanley Managing Director Jessica Zhao.
In her appeal letter, He Yi said, "As a partner of CZ (CZ is the name of CZ in the crypto, the abbreviation of Changpeng Zhao)", she is aware of "his sense of mission and responsibility for the industry"; "as CZ's life partner", they have known each other for ten years, and she knows that "he lives a simple life" and "try his best to take time out of his busy work to maintain high-quality interaction with his three young children."
She believes that CZ"biggest mistake is ignorance" and he did not commit the crime knowingly. He Yi also talked about the "Wild West". She said: "If the cryptocurrency industry is compared to the Wild West, then CZ is the guardian of this wilderness."
After He Yi, there were three letters of appeal from CZ other two children and their mother, CZ's wife Yang Weiqing.
Yang Weiqing said in the letter that she and CZ"met in 1999 and got married in 2003". After marriage, she has been a full-time wife, and CZ takes good care of the children and family, "rarely missing any opportunity to take care of the children in person", "changing diapers, feeding, accompanying the children on trips, etc."
Moreover, "Changpeng has been bearing all the family expenses", "he helped my parents buy a house in Tokyo", and "he also helped my nephew find a job."
At the end of the letter, Yang Weiqing "begged the judge to give a light sentence and give Changpeng a chance to continue taking care of his family."
The letters of appeal from political and business leaders include Max Baucus, the US ambassador to China during the Obama administration, members of the ruling families of several emirates in the UAE, and Liang Xinjun, co-founder of Fosun Group.
Max Bocas said in the letter that CZ had invited him to be a consultant for Binance. "A few months ago, my wife and I prepared dinner for CZ at our home in Montana." Max Bocas emphasized that CZ was different from Sam Bankman-Fried, who was sentenced to 25 years not long ago. "He did not use other people's funds in his own account, which is different from Sam Bankman-Fried, who did just that."
Liang Xinjun wrote a letter of appeal as the CEO and founder of Singapore Xin Family Office. He specifically mentioned that at the beginning of the Russo-Ukrainian war, CZ blocked Russia, preventing Russia from using cryptocurrency financing, asset transfers, and payments on the Binance platform.
Later, Liang Xinjun added: "I am more convinced that he is not a profit-seeking businessman. His business philosophy is to benefit mankind and the world."
