From Zhao Changpeng being sentenced to 4 months, let's talk about the legal dilemmas of cryptocurrency exchanges

Author: Liu Zhengyao, Senior Lawyer at Shanghai Mankun Law Firm

On April 30, local time, the U.S. District Court in Seattle ruled against Binance founder Zhao Changpeng (CZ). Unlike the 36-month sentence pursued by the U.S. Department of Justice (DOJ), Chief Judge Richard A. Jones sentenced CZ to 4 months in prison for violating the anti-money laundering provisions of the U.S. Bank Secrecy Act.

Subsequently, CZ stated on social media that he would serve his sentence and then focus on the education sector. He also emphasized the importance of compliance for cryptocurrency exchanges, and how the close scrutiny of Binance and the protection of user funds during the incident (in which he was prosecuted by the DOJ) were crucial for him receiving a lighter sentence. Finally, CZ reiterated his commitment to protecting users.

The last sentence, "Protect users!" inevitably reminds one of the case on March 28, when FTX founder SBF (Sam Bankman-Fried) was sentenced to 25 years for fraud and misappropriation of customer funds, resulting in losses exceeding $8 billion.

In this light, CZ's situation doesn't seem too bad, but the story is not over. Lawyer Liu has outlined the demands from various U.S. law enforcement agencies regarding CZ or Binance, which may help us better understand the legal dilemmas that cryptocurrency exchanges might face:

Some friends might feel that CZ's experience resembles being caught in an American "pump and dump" scheme, and some articles are filled with schadenfreude. Lawyer Liu believes these views are somewhat superficial (though this does not mean my perspective is necessarily profound). The experiences of Binance or CZ are essentially a reactive response from centralized government institutions to the application of decentralized technology in finance, especially in currency.

Cryptocurrency exchanges, when facing conservative authoritarian governments, have to compromise. However, the awkwardness is that cryptocurrency exchanges themselves are typical centralized institutions, which contradicts the original intention of decentralization in cryptocurrencies. While their existence is reasonable at present, as they provide great convenience for virtual currency transactions between users, they are fundamentally trapped in the pitfalls of centralization. CZ is not always blameless, and Binance is not the "protector" of the crypto world; it's just that CZ hasn't crossed as many red lines as SBF did.

From the regulators' perspective, whether it is the U.S. DOJ, SEC, CFTC, or the territorial jurisdiction, personal jurisdiction, protective jurisdiction, and universal jurisdiction in Chinese criminal law, the country's legislators and enforcers can always find grounds to justify their actions. In other words, at least in the eyes of many politicians, politics is the law of laws, and law is a tool of politics (but Lawyer Liu still firmly believes in the law!).

The U.S. has accused Binance of violating its Bank Secrecy Act's anti-money laundering provisions, such as failing to report nearly 100,000 transactions involving Hamas, ISIS, and the terrorist organization Al-Qaeda; and not restricting the $890 million transactions between U.S. users and Iranian users. Additionally, Binance earned huge fees from millions of transactions between users from "Cuba, Syria, and Crimea, Donetsk, and Luhansk in Ukraine." (Quoted from "Trial of Zhao Changpeng | Prism," author Wen Shijun)

（Images of CZ's court hearing circulating online, infringement will be deleted）

According to some U.S. lawyers, the application of the Bank Secrecy Act in CZ's case is not common in U.S. jurisprudence. Therefore, it cannot be ruled out that the CZ case was concocted.

However, as mentioned earlier, the author's speculation is not aimed at blaming any government, as we cannot guarantee that CZ would receive a lighter sentence of less than 4 months in other countries; he could even face harsher penalties. What the author wants to convey is that it remains challenging for cryptocurrency exchanges and the decentralized cryptocurrencies they represent to be accepted by all governments in a short period. However, some people express optimism—America, as the global financial hegemon, seems not to have dealt a fatal blow to the "hegemons" of the cryptocurrency world, which raises the question: does this mean that the possibility of cryptocurrencies being accepted by the "mainstream world" is increasing?

But for true believers in decentralization, what does the "mainstream world" think—Who cares?