Trump Pardons Binance Founder Changpeng Zhao: Implications for US Cryptocurrency Regulation and Industry

Changpeng Zhao founded Binance in 2017.

United States:

President Donald Trump has pardoned Binance founder Changpeng Zhao, who established the world's largest cryptocurrency exchange and served time in prison for failing to prevent criminals from utilizing the platform to transfer funds linked to child sex abuse, drug trafficking, and terrorism.

The pardon concludes a months-long effort by Zhao, a billionaire commonly referred to as CZ in cryptocurrency circles and one of the industry's most prominent figures. Both he and Binance have been significant supporters of several Trump family cryptocurrency ventures.

"Deeply grateful for today's pardon and to President Trump for upholding America's commitment to fairness, innovation, and justice," Zhao stated on social media Thursday.

Zhao's pardon represents the latest instance of a president exercising executive authority to grant clemency to political allies, notable public figures, and others convicted of crimes.

White House press secretary Karoline Leavitt claimed in a Thursday statement that Democratic President Joe Biden's administration prosecuted Zhao due to a "desire to punish the cryptocurrency industry" and that there were "no allegations of fraud or identifiable victims."

The cryptocurrency industry has long maintained it was subjected to "regulation by enforcement" under the Biden administration. Trump's pardon of Zhao aligns with his broader pattern of adopting a hands-off approach toward an industry that invested heavily in supporting his 2024 election campaign. His administration has terminated several enforcement actions against cryptocurrency companies initiated during Biden's term and disbanded the Justice Department's cryptocurrency-related enforcement team.

Former federal prosecutor Mark Bini noted that Zhao was imprisoned for what "sounds like a regulatory offence, or at worst, its kissing cousin."

"So this pardon, while it involves the biggest name in crypto, is not very surprising," said Bini, a white collar defence lawyer handling cryptocurrency issues at Reed Smith.

Zhao was released from prison last year after receiving a four-month sentence for violating the Bank Secrecy Act. He was the first individual ever sentenced to prison time for such violations of that law, which requires US financial institutions to identify their customers, monitor transactions, and report suspicious activity. Prosecutors stated that no one had ever violated these regulations to the extent Zhao did.

The judge presiding over the case expressed concern regarding Zhao's decision to disregard US banking requirements that would have impeded the company's rapid growth.

"Better to ask for forgiveness than permission," was what Zhao told his employees about the company's approach to US law, according to prosecutors. Binance permitted more than 1.5 million virtual currency transactions, totaling nearly $900 million, that violated US sanctions, including those involving Hamas' al-Qassam Brigades, al-Qaida, and Iran, prosecutors said.

"I failed here," Zhao told the court last year during sentencing. "I deeply regret my failure, and I am sorry."

Zhao's journey to becoming a cryptocurrency billionaire is remarkable. He grew up in rural China, and his family immigrated to Canada following the 1989 Tiananmen Square massacre. As a teenager, he worked at McDonald's and developed a passion for the technology industry during college. He established Binance in 2017.

In addition to adopting pro-cryptocurrency enforcement and regulatory positions, the president and his family have actively pursued financial opportunities in the cryptocurrency sector.

A stablecoin launched by World Liberty Financial, a cryptocurrency project founded by Trump and his sons Donald Jr. and Eric, received early support and credibility through an investment fund in the United Arab Emirates using $2 billion worth of World Liberty's stablecoin to acquire a stake in Binance. Stablecoins are a type of cryptocurrency typically pegged to the value of the US dollar.

A separate World Liberty Finance token experienced a significant price surge on Thursday shortly after news of the pardon was made public, with gains substantially outpacing any other major cryptocurrency, according to data from CoinMarketCap.

Zhao had indicated earlier this year that his lawyers had requested a pardon.

It remains unclear what impact Trump's pardon of Zhao may have on operations at Binance and Binance.US, a separate branch of the main exchange offering more limited trading options to US residents.