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| | The Justice Department is hoping to send a signal to the crypto world with today’s sentencing of former Binance CEO Changpeng Zhao in Seattle. If prosecutors have their way, he’ll be facing three years in prison for breaking anti-money laundering rules. But some watchdogs are warning the punishment is nowhere near tough enough. The prosecution of Zhao, who goes by CZ, is the latest attempt by the U.S. to penalize a high-flying crypto titan whose meteoric rise was bolstered by dramatic violations of federal law. It follows the fraud conviction of FTX founder Sam Bankman-Fried, who is serving a 25-year prison term. SBF’s fall, stoked in part by Zhao, was tied to a kind of classic financial scam that echoed Bernie Madoff’s. The crimes alleged against Binance, the world’s largest crypto exchange, are much more sweeping in nature. They raise broader policy questions about the digital assets industry and national security. In a long-awaited settlement revealed in November, Binance agreed to pay $4.4 billion to resolve charges that it aided terrorist networks, violated sanctions and facilitated human and narcotics trafficking. Zhao, worth an estimated $42.9 billion, pleaded guilty to the charge that he failed to ensure that Binance policed money laundering on its platform. As part of the deal, he stepped down from the crypto giant he co-founded and consented to $200 million in penalties. Binance agreed to exit the U.S. and accept a monitorship. In an attempt to signal the action’s importance, Attorney General Merrick Garland and Treasury Secretary Janet Yellen appeared together to announce it. Despite the settlement, the Justice Department earlier this month urged a federal judge to send CZ to prison for three years, arguing that “this case will not just send a message to Zhao but also to the world.” “Zhao reaped vast rewards for his violation of U.S. law, and the price of that violation must be significant to effectively punish Zhao for his criminal acts and to deter others who are tempted to build fortunes and business empires by breaking U.S. law,” DOJ wrote in a sentencing memo. Zhao’s lawyers are instead seeking probation. CoinDesk reports that more than 160 of Zhao’s “loved ones, friends and colleagues” are urging the judge to grant him leniency, describing him as a devoted father and tech nerd. Federal guidelines would allot Zhao a 12-to-18-month sentence. But Danny Silva, a former federal prosecutor, told our Declan Harty that those are just starting points. Silva expects that Judge Richard Jones, who’s overseeing the case, will likely hand down a sentence closer to the prosecution’s ask. “It’s just so much money and it’s just such flagrant violations,” Silva said. “There were real-world consequences from these violations.”
| | | | A message from the Financial Services Forum: Basel III Endgame will make it harder for small businesses to meet payroll, hire, and invest in growth. Learn more. | | | Despite the tough rhetoric from the Justice Department, crypto critics are questioning whether the punishment being sought fits the crime. Better Markets President and CEO Dennis Kelleher argues in a new memo that the settlement is “pathetic compared to the crime wave and the wealth accumulated” from the alleged conduct. He says Zhao is facing a “minimal charge.” Kelleher, a former Skadden Arps partner, points to the sentencing memo from CZ’s own lawyers. They’ve told the court that Zhao deserves probation because failing to make sure that Binance complied with anti-money laundering safeguards “is not the same as engaging in money laundering, much less fraud or misappropriation of customer funds.” Kelleher says CZ “may go from a jail cell back to a corner suite” in three years, despite the gravity of the exchange’s crimes. He notes that DOJ is allowing other Binance executives and employees to remain at the company. (Users of the prediction site Polymarket doubt Zhao will spend a year in jail.) “No question SBF’s crimes inflicted widespread damage, hurt millions of hard-working people, and deserved to be punished severely,” Kelleher writes. “However, they pale in comparison to CZ’s crimes of effective aiding and abetting of narcotics trafficking, terrorist financing, sanction evasion, sex trafficking, and ransomware extortion. Yet, at most, CZ will serve about an eighth of SBF’s sentence.” It’s Tuesday — Send tips to zwarmbrodt@politico.com. Keep up with Jasper at jgoodman@politico.com and @jasper_goodman.
| | | | THE GOLD STANDARD OF FINANCIAL SERVICES POLICY REPORTING & INTELLIGENCE: POLITICO has more than 500 journalists delivering unrivaled reporting and illuminating the policy and regulatory landscape for those who need to know what’s next. Throughout the election and the legislative and regulatory pushes that will follow, POLITICO Pro is indispensable to those who need to make informed decisions fast. The Pro platform dives deeper into critical and quickly evolving sectors and industries, like financial services, equipping policymakers and those who shape legislation and regulation with essential news and intelligence from the world’s best politics and policy journalists.
Our newsroom is deeper, more experienced, and better sourced than any other. Our financial services reporting team—including Zach Warmbrodt, Victoria Guida and Declan Harty—is embedded with the market-moving legislative committees and agencies in Washington and across states, delivering unparalleled coverage of financial policy and the financial services industry. We bring subscribers inside the conversations that determine policy outcomes and the future of industries, providing insight that cannot be found anywhere else. Get the premier news and policy intelligence service, SUBSCRIBE TO POLITICO PRO TODAY. | | | | | | | | | The FOMC begins its two-day meeting … Rep. French Hill speaks at ICBA’s Capital Summit around 8 a.m. … The Treasury Borrowing Advisory Committee meets at 9 a.m. … International Sustainability Standards Board Vice Chair Sue Lloyd speaks at the Peterson Institute at 9 a.m. … Treasury Secretary Janet Yellen testifies at House Ways and Means at 10 a.m. … The Conference Board releases results of its monthly consumer confidence survey at 10 a.m. … House Small Business holds a hearing on corporate ownership reporting rules at 10 a.m. … House Oversight holds a hearing on the health of commercial real estate at 2 p.m. … Acting HUD Secretary Adrianne Todman testifies at Senate Appropriations at 2:30 p.m. Schumer backs crypto-cannabis deal — Eleanor Mueller broke the news on POLITICO Pro that Senate Majority Leader Chuck Schumer is hoping to add stablecoin and cannabis banking legislation to the FAA reauthorization bill. He had not previously revealed public support for the move. Even with Schumer's backing, the plan faces major obstacles. Senate Minority Leader Mitch McConnell continues to oppose marijuana banking, according to a spokesperson. On top of that, House Financial Services Chair Patrick McHenry and ranking member Maxine Waters have yet to finalize the specifics of their stablecoin compromise. Waters confirmed to reporters Monday evening that she and McHenry are “not quite” at a deal on the stablecoin proposal. She described it as being “in limbo” amid the search for a legislative vehicle, though she was “still very positive” about the prospects for attaching it to the FAA bill. “Schumer still has a lot to do or say," she said. "And so I'm hopeful." NEC shakeup — Rob Friedlander is now NEC chief of staff and senior adviser for communication. Michael Kikukawa is senior communications adviser for economic messaging. SCOTUS rebuffs Musk — Per Declan, the Supreme Court on Monday rejected Elon Musk's attempt to appeal an SEC settlement that required his social media posts about Tesla to be pre-approved by a lawyer. Warren presses insurers — Nick Niedzwiadek reports that Sen. Elizabeth Warren is demanding information from more than a dozen of the largest annuity companies about bonuses and other inducements they offer to sellers of their products. “These secret kickbacks hurt consumers by incentivizing agents to sell certain products because they will earn a bigger cash bonus or fancier vacation, not because they are in the best interests of their customers,” Warren writes in a letter to the firms.
| | | | Europe weighs opt-out for Russian assets plan — Per Gregorio Sorgi, the EU is looking at letting neutral countries exclude themselves from using the proceeds of frozen Russian assets to buy weapons for Ukraine. "The idea is to create two different tracks: One that is limited to using the profits for non-military aid, and a second one that is aimed at buying weapons, from which neutral countries can opt out," Gregorio reports from Brussels.
| | | | A message from the Financial Services Forum:   | | | | | Investors fret over the election — The WSJ has a look at how investors around the country are “getting jittery” about the Biden-Trump rematch. “Many are peppering their financial advisers with questions about what the contest will mean for their portfolios,” Gunjan Banerji reports. “On Wall Street, strategists have been trying to sketch out the implications of a blue or red win on stocks, interest rates and oil prices.”
| | | | POLITICO IS BACK AT THE 2024 MILKEN INSTITUTE GLOBAL CONFERENCE: POLITICO will again be your eyes and ears at the 27th Annual Milken Institute Global Conference in Los Angeles from May 5-8 with exclusive, daily, reporting in our Global Playbook newsletter. Suzanne Lynch will be on the ground covering the biggest moments, behind-the-scenes buzz and on-stage insights from global leaders in health, finance, tech, philanthropy and beyond. Get a front-row seat to where the most interesting minds and top global leaders confront the world’s most pressing and complex challenges — subscribe today. | | | | | | | | More DOJ concerns — Coin Center, a leading crypto think tank, is warning about “regulation by criminal enforcement” following recent moves targeting non-custodial crypto wallets. “It has been the clear and consistent policy of the U.S. government since at least 2013 that cryptocurrency wallet developers and the users of those wallets are not money transmitters,” Coin Center research director Peter Van Valkenburgh writes in a new blog post. “So it has come as quite a surprise that the Department of Justice is suddenly intent on charging wallet developers criminally for unlicensed money transmission even if they exercise no actual control over the assets their users choose to secure with their software.” Van Valkenburgh says that the group is planning to address the issue in the courts and on Capitol Hill.
| | | MM first look: Treasury’s next headache — House Small Business Chair Roger Williams will use a hearing today to target Treasury’s implementation of new rules intended to crack down on anonymous shell companies. The rules at issue require an estimated 32 million businesses to disclose their ownership details to the government. Williams, a Texas Republican, will say in an opening statement that regulations issued by Treasury’s Financial Crimes Enforcement Network “have been overly broad, leading to unnecessary regulatory burdens on our nation’s job creators.” He’ll also reiterate long-running privacy concerns. Both have dogged the debate around the transparency measure for several years. FinCEN Director Andrea Gacki testified in February that the agency “has no interest in hitting small businesses with excessive fines or penalties.”
| | | | A message from the Financial Services Forum: Basel III Endgame will increase the cost and reduce the availability of credit for small businesses, making it harder and more expensive for these crucial engines of the U.S. economy to get a loan. This is especially true for historically underserved groups, like female or minority business owners.
Protect small businesses from policies that would make it harder for them to grow, hire, and thrive. Scrap Basel III Endgame and start over. | | | | | | | Follow us on Twitter | | | | Follow us | | | | |
