Chang Peng ZHOU (“CZ”) and that four months' jail sentence.

“We are not suggesting that Mr. Zhao is Sam Bankman-Fried and he is a monster, and we are not trying to kill the cryptocurrency industry,” said prosecutor Kevin Mosely, deputy chief of the U.S. Justice Department’s Bank Integrity Unit, reports say.

But, even so, does the sentence undermine efforts to counter-money laundering?

Nigel Morris-Cotterill is annoyed.

Nigel Morris-Cotterill

I do not know and will probably never know the exact extent of the facts against "CZ". It will not be made public because, as is the way in the USA, the prosecution and defence conspired to ensure that justice is not seen to be done by the use of a plea agreement and a rapid guilty plea.

The agreement was that the case would go before a judge for sentencing and that CZ would not appeal provided the sentence was for less than three years in jail. That, it was widely assumed, was a nod to the judge that that was the expected sentence.

Instead, the judge sentenced CZ to four months in jail.

"Cryto-Binance-Money Laundering-four months" This is not the truth

What we do know is that CZ was not charged with money laundering - nor, incidentally, was Binance, the company he founded and still owns a very large slice of. He was charged with "failing to establish an anti-money laundering program as required by law."

The importance of this case is that an owner/officer of a company has been jailed for regulatory failures

So, let's be clear: he was charged that, as a person responsible, he failed to put in place the required counter-money laundering systems i.e. training staff, appointing a person to receive suspicious transaction reports, a system for producing, making and storing those reports and/or a Know Your Customer system.

Prosecutors said that the lack (or inadequacy) of controls meant that Binance's cryptocurrency exchanges could be used by a wide range of criminals from terrorist financiers to child abusers and more. But those statements did not form the basis of the charges.

Nigel Morris-Cotterill is a financial crime risk and compliance strategist. He can be contacted at www.countermoneylaundering.com

So, with much scratching of the head, I have to say that the penalty of four months' jail is actually not ridiculous for the offences as charged. In fact, what is startling is that an officer of a company has been jailed as a result the failures in relation to systems. That is unusual and may be the first.

But, the fact is that this case will not, in the eyes of the vast majority of people, be seen in that light. The Department of Justice's rhetoric, amplified by primarily US media, and boosted by the fact that CZ is Chinese, means that the narrow point above will not be noticed. What people will see is "Founder of Binance jailed for money laundering" which is not the case at all.

And they will see the sentence and say "four months is ridiculous." And, if he was convicted of money laundering, it would be. The perception is stronger than the reality.

And that perception makes my job much, much more difficult. My immediate reaction to the news was So WTF are we all working for?

I might as well go now and set up that café/bar on a surfing beach I've been thinking about for the past couple of years.

Clearly I - and many others - are wasting our time.

For decades I've impressed upon staff, officers and boards the seriousness of the consequences for failure?

What's this year's big financial crime story for them?

It's' going to be this one. The risk-reward argument has just been turned on its head.

Time to think about real-world challenges. How to stop seagulls sh*tting in drinks while people rush off to catch a wave.

Where there is no disincentive to commit financial crime, people will commit financial crime. There is a threshold. People commit financial crime because there is less effort required to generate the same income than by legitimate endeavour (me: 1996).

They also commit it because the chances of getting caught are lower than other forms of crime (ditto).

It is the risk of being banged up for, say, 14 years that is the disincentive. That's why counter-money laundering laws were originally designed - to funnel information relating to moneys that may be traced back to criminal conduct into choke points (banks, etc) which deliver it to investigators.

So now we have more choke points, more than "money" in its commonly used sense, and so these systems should be generating more information that, when analysed, presents investigators with a route back to the crime during which money launderers and criminals are identified.

That redresses the balance so criminals don't think "I'll never get caught."

Now, they won't care if they are.

And that's the problem. CZ is not a money launderer. He was never charged with money laundering. Nor, incidentally, was Binance. He is convicted of a failure to properly manage a company. That failure happened to relate to the putting in place of counter-money laundering systems but it might equally have been for failing to ensure that the lifts in a building were subject to periodic maintenance.

But the wider perception, and the one that undermines the work I have done for 30 years, doesn't recognise that. And financial criminals will be emboldened. Actual money launderers get much more than four months in jail. That's what we must remember and that's what we must impress upon clients and their staff.


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