Binance founder CZ starts sentence at low-security federal prison

Changpeng Zhao, founder of the world’s largest cryptocurrency exchange Binance, began a four-month prison sentence today in California for failing to implement a proper know-your-customer (KYC) program.

Zhao, a Canadian citizen known by his initials CZ, pleaded guilty in November to violating the Bank Secrecy Act (BSA). A federal judge sentenced him in April to a term shorter than the three years sought by prosecutors but longer than sentences received by other crypto executives for similar offenses.

Zhao is serving his sentence at Lompoc II, a low-security federal prison in California’s Santa Barbara County. The facility, which houses around 2,160 inmates, offers different conditions from the notoriously harsh New York prison where former FTX CEO Sam Bankman-Fried is serving his 25-year sentence.

The sentence makes Zhao, with a net worth of $36.5 billion according to Bloomberg, potentially the richest person ever incarcerated in the United States. He was also fined $50 million and resigned as Binance CEO.

Binance itself pleaded guilty to money laundering and sanctions violations alongside Zhao. The exchange earlier this year settled charges with federal regulators for $4.3 billion, which included the appointment of an independent compliance monitor.

Prosecutors accused Zhao of deliberately targeting U.S. users and violating U.S. laws for the benefit of his company. They argued that Zhao’s actions were not accidental but rather a deliberate strategy to attract users and grow Binance’s business.

In contrast, Zhao’s lawyers described him as a first-time offender whose life revolves around his family and the positive impact of technology, including his work with Binance.

Zhao’s lawyer, William Burck, also highlighted the risks Zhao faces in prison due to his notoriety, wealth, and cooperation with the government.

In his letter, Zhao admitted that he should have put better compliance measures in place at Binance, stating, “There is no excuse for my failure,” and assured this would be his only “encounter with the criminal justice system.” He also shared plans to support biotech startups and youth initiatives moving forward.

Zhao’s request for leniency was supported by 161 letters, including from family, friends, and colleagues. His sister, Jessica Zhao, highlighted his commitment to doing good, even during the FTX crisis, ensuring Binance safeguarded customer funds.

Further support came from He Yi, Binance co-founder and mother of Zhao’s three children, who defended Zhao’s navigation of the complex and under-regulated cryptocurrency landscape. Zhao’s wife, Yang Weiqing, mentioned that he’s given millions to help disaster victims in Japan. Plus, Zhao’s kids and Tigran Gambaryan, who heads Financial Crime Compliance at Binance, shared some personal stories and praised “his integrity and global impact.”

Additional letters of support came from notable figures such as Binance’s Head of Financial Crime Compliance, Tigran Gambaryan, former U.S. Ambassador to China, Max S. Baucus, and academics from prominent universities, all attesting to Zhao’s integrity and impact.