Changpeng “CZ” Zhao, the founder of Binance, has begun serving a four-month sentence in a federal prison in California. This punishment is due to his failure to implement an adequate know-your-customer (KYC) program at Binance, the largest cryptocurrency exchange in the world.
Zhao, who is Canadian, admitted to violating the Bank Secrecy Act (BSA) in November. A federal judge sentenced him to four months in prison in April, which is significantly shorter than the three-year term federal prosecutors had sought. This sentence is also longer than what some other crypto executives have received for similar offenses, such as former BitMex CEO Arthur Hayes.
According to the Bloomberg Billionaires Index, Zhao has a net worth of $36.5 billion, making him the wealthiest individual to ever be imprisoned in the United States.
Besides serving time, Zhao was fined $50 million and agreed to step down from his position as CEO of Binance. The company also pleaded guilty to charges of money laundering and sanctions violations. Earlier this year, Binance settled these charges by paying $4.3 billion in fines to various federal regulators and agreeing to appoint an independent compliance monitor.
Zhao will be serving his sentence at Lompac II, a low-security prison located in Santa Barbara County, on California’s central coast. The facility, where he will be known as inmate 88087-510, currently houses 2,160 inmates, according to the Bureau of Prisons’ records. Conditions at Lompac II, where inmates have opportunities to work on a nearby farm with crops and livestock, are notably better than those at the prison holding former FTX CEO Sam Bankman-Fried. Bankman-Fried is serving a 25-year sentence in a notoriously harsh facility in New York.
This case highlights the increasing scrutiny and legal actions faced by major figures in the cryptocurrency industry. While the sentences and fines may vary, the enforcement of compliance measures such as KYC is becoming a critical focus for regulators to prevent financial crimes. As Zhao serves his sentence, the future leadership and operational practices of Binance will be closely watched by both industry participants and regulatory bodies.