Why the DOJ May Have Recommended a Three-Year Sentence for CZ

As a researcher with experience in criminal law and finance, I find the case of Changpeng “CZ” Zhao’s sentencing particularly intriguing. While his plea agreement stipulated that he couldn’t appeal any sentence longer than 18 months, there was no mention of restrictions preventing U.S. prosecutors from recommending a greater sentence.

As a legal and financial analyst, I can tell you that if the former Binance CEO, Changpeng “CZ” Zhao, is found to violate the terms of his plea agreement, he could be looking at a more severe sentence of up to three years in a U.S. federal prison, which is significantly longer than the previously agreed-upon 18 months.

Zhao’s sentencing proceedings are scheduled for Tuesday, providing the U.S. Department of Justice (DOJ) and his legal defense team with an opportunity to make their cases regarding the appropriate prison term for Zhao following his guilty plea to one charge of Bank Secrecy Act violation in November 2021. Although Zhao’s plea deal allowed him the right to appeal any sentence longer than 18 months, the DOJ suggested a sentence of 36 months in their sentencing memorandum submitted last week. In contrast, his defense attorneys advocated for house arrest and probation without any jail time. The Probation Office recommended a five-month prison term based on their presentence report, as stated in the defense filing from last week.

As a crypto investor, I’ve noticed that the Department of Justice (DOJ) is sending a clear message with their recent longer sentence request in the case of Zhao. The DOJ has been actively working to crack down on money laundering activities within the cryptocurrency sphere, and from what I’ve gathered, Zhao’s actions were quite flagrant when it comes to disregarding anti-money laundering rules.

She expressed concern that the lenient thresholds might be misunderstood as permission to disregard our anti-money laundering regulations.

Although the DOJ’s longer statement might have initially shocked the crypto industry, this does not imply that they are backing down from their commitment to propose sentences no longer than 18 months, according to Kudman.

As a crypto investor, I’ve come across various legal situations where plea negotiations take place. In such scenarios, we typically discuss and agree on aspects like the extent of loss and the valid arguments that can be presented by both parties. However, based on my understanding of this document, it doesn’t seem to impose a limitation on the time frame to 18 months only.

As a researcher, I would put it this way: The DOJ retains the power to advocate for a more extended sentence than the suggested guidelines, yet this same flexibility enables the defense to propose a significantly reduced sentence based on the same guidelines.

As an analyst, I’d rephrase it this way: In their filing, the Department of Justice highlighted the substantial amount of funds that bypassed Binance’s know-your-customer and anti-money laundering protocols.

Zhao’s legal team, along with his family and friends, have made the case that he is truly remorseful, has attempted to make amends for his actions, and poses no risk of reoffending. They propose that a sentence of house arrest and probation would be sufficient to uphold the principles of justice instead of imprisonment.

The judge holds significant authority in this matter. He can choose to approve or dismiss both sides’ viewpoints regarding the role of deterrence in determining an appropriate sentence for Zhao, as well as the type of penalty that would effectively discourage potential wrongdoings not just from him but also within the crypto community at large.

An alternate legal professional, without providing public comments on the specific case, concurred that it’s common practice for prosecutors to request sentences that deviate from the suggested sentencing guidelines.

Sam Bankman-Fried, the ex-CEO of FTX, initially faced a sentencing guideline recommendation exceeding 100 years based on prosecution charges. However, the prosecutors proposed a sentence of 50 years. The judge eventually handed down a verdict of 25 years’ imprisonment.

As a crypto investor, I’ve noticed that even when the regulatory guidelines seem lenient, there can still be underlying implications of violating sanctions. This is common because the Bank Secrecy Act (BSA) guidelines are generally low and may not account for extenuating circumstances. Consequently, I wasn’t astonished to hear a hint of sanctions infringement beneath what was officially classified as a BSA violation.

The most noteworthy comparison regarding Zhao’s potential sentencing can be drawn from the situation of Arthur Hayes, former CEO of BitMEX. Similar to Zhao, Hayes was found to have breached the Bank Secrecy Act and admitted guilt. The presiding judge imposed a sentence of six months’ home confinement and two years of probation on Hayes.

Appealing the decision

As a researcher examining this case, I’ve discovered that while Zhao holds the power to challenge a lengthier sentence, it would be an uphill battle for him to prevail. According to legal experts, circuit courts seldom overturn sentences handed down by district courts, even if they are perceived as excessive.

“According to Kudman, the parties aimed for the flexibility to suggest their preferred options. Each negotiation carries a unique taste and distinctive issues.”

From my perspective as an analyst, she doesn’t allege that the DOJ acted with ill intent in this situation. However, had the DOJ concealed its stance during plea talks, it could have raised suspicions of unfaithfulness to the negotiated agreement.

In this case, the Department of Justice (DOJ) had minimal risks in requesting a more extended sentence, according to the second lawyer. However, other lawyers who could potentially handle future plea deals are undoubtedly taking note.

The DOJ’s suggestion that Zhao shouldn’t get credit for taking responsibility may come up.

“Advanced white collar lawyers will closely examine this plea agreement and employ it in future discussions, making it surprising that such a minimal amount was proposed for a defendant with an extensive record. This point will likely be referenced back to the Department of Justice.”

The second lawyer acknowledged that Zhao’s decision not to plead guilty to sanctions violations in the plea agreement would be viewed favorably by the system. This leniency can be attributed partly to the terms of the agreement itself.

The DOJ-recommended sentence is also still shorter than if Zhao had gone to trial.

Zhao could potentially earn recognition from the judge not just for those actions, but also for adhering to the revised conditions of his bond release.

“The chasm between a person attempting to avoid apprehension and one who willingly surrenders and confesses is significant, and such an action will earn substantial acknowledgement.”