Founder of KuCoin cryptocurrency exchange sued for violating anti-money laundering regulations!
On the evening of March 26th, the US Department of Justice revealed on its official website that KuCoin, a cryptocurrency exchange, and its two founders have been charged with violating the Bank Secrecy Act and unauthorized money transmission. The lawsuit was filed by the US Commodity Futures Trading Commission (CFTC).
According to the disclosed information, Damian Williams, the federal prosecutor for the Southern District of New York, and Darren McCormack, the acting special agent in charge of the Homeland Security Investigations (HSI) office in New York, announced the indictment against the global cryptocurrency exchange KuCoin and its two founders, CHUN GAN (also known as “Michael”) and KE TANG (also known as “Eric”). The charges include:
1. Operating an unauthorized money transfer business.
2. Violating the Bank Secrecy Act.
3. Willfully failing to maintain an adequate anti-money laundering (AML) program designed to prevent KuCoin from being used for money laundering and terrorist financing.
4. Willfully failing to maintain reasonable procedures to verify customer identities.
5. Failing to submit any suspicious activity reports.
6. Operating an unauthorized currency transmission business.
US prosecutor Damian Williams explained the indictment, stating, “As alleged in today’s indictment, KuCoin and its founders intentionally concealed the fact that a significant number of US users were trading on the KuCoin platform.”
It is alleged that KuCoin, leveraging its large US customer base, has become one of the world’s largest cryptocurrency derivatives and spot exchanges, with a daily trading volume of billions of dollars and an annual trading volume of trillions of dollars. However, financial institutions like KuCoin that take advantage of unique opportunities in the US must also comply with US laws to help identify and eradicate criminal and corrupt financing schemes. However, KuCoin deliberately chose not to do so.
It is alleged that KuCoin even failed to implement basic anti-money laundering policies, making it a safe haven for illegal money laundering, accepting over $5 billion in deposits and transferring over $4 billion in suspicious and criminal funds. This indictment also sends a clear message to other cryptocurrency exchanges: if you plan to serve US customers, you must comply with US laws, plain and simple.
Darren McCormack, the acting special agent in charge of the Homeland Security Investigations office in New York, pointed out that KuCoin has served over 30 million customers but the investigation found that the exchange failed to comply with the necessary laws to ensure the security and stability of the global digital banking infrastructure.
What information does the indictment reveal?
According to the disclosed information in the indictment, FLASHDOT LIMITED (formerly known as “Phoenixfin Limited”), PEKEN GLOBAL LIMITED, and PHOENIXFIN PRIVATE LIMITED are three entities that jointly conduct business as the global cryptocurrency exchange KuCoin. KuCoin solicited business from US customers through its spot trading platform and futures trading platform launched in July 2019. Since its establishment in 2017, KuCoin has become one of the world’s largest cryptocurrency trading platforms, with daily trading values in the billions of dollars.
KuCoin’s website promotes the exchange’s public rankings, showing that it has risen to the top five globally. One public ranking even lists it as the fourth-largest cryptocurrency derivatives exchange and the fifth-largest spot exchange. The US Department of Justice believes that KuCoin, GAN, and TANG attempted to serve and, in fact, have served numerous customers located in the US and the southern region of New York.
Therefore, the US Department of Justice believes that KuCoin needs to register its money transfer business with the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and register with the US Commodity and Futures Trading Commission (CFTC) as a money transmission business and futures commission merchant.
Additionally, KuCoin must comply with applicable provisions of the US Bank Secrecy Act, which requires maintaining appropriate anti-money laundering programs, including customer identity verification or Know Your Customer (KYC) processes. AML and KYC programs can ensure that financial institutions like KuCoin are not used for illegal purposes, including money laundering.
The US Department of Justice also pointed out that KuCoin attempted to conceal the presence of US customers to appear exempt from US AML and KYC requirements. According to the indictment, in 2022, KuCoin lied to at least one investor about the location of its customers, falsely claiming that it had no US customers. However, KuCoin has a large US customer base, and in many social media posts, it actively promotes its services to US customers. For example, in a Twitter message in April 2022, KuCoin stated, “KYC is not supported for US users, but regular trading can be done with an unverified account.” This suggests that KuCoin’s policy of not requiring KYC is essential to its growth and success.
Will there be a settlement in the end?
It is not uncommon for cryptocurrency exchanges to be sued by the US Department of Justice, and if we look at similar cases, it is likely that a settlement will be reached after paying fines.
The most typical example is undoubtedly Binance. At the end of last year, Binance and its CEO, CZ, agreed to plead guilty to criminal and civil charges under an agreement reached with the US Department of Justice. Binance will also pay a total of $4.368 billion in fines, including $3.4 billion to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and $968 million from the Office of Foreign Assets Control (OFAC). This settlement marks the end of the long-running litigation against CZ and Binance.
After the indictment in the US was disclosed, KuCoin posted on social media that it is operating well and user assets are secure. They have become aware of the reports and are currently investigating the details through lawyers. They also emphasized their respect for the laws and regulations of each country and strict compliance with compliance standards.
However, the native token of KuCoin, KCS, has experienced a decline. According to Coingecko data, KCS fell to the $12 range with a decrease of over 12% within 24 hours after the news of the indictment spread.
It is worth mentioning that the US Commodity Futures Trading Commission stated in the legal complaint against the operator of the KuCoin cryptocurrency exchange that Bitcoin, Ethereum, and Litecoin are commodities. This may be alternative “good news” for the cryptocurrency industry.
Based on the general feedback from the crypto community, there is a possibility of a settlement between the two parties. We will have to wait and see how the situation unfolds.
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Proofread by Gao Jingyuan.