Founder of cryptocurrency exchange KuCoin indicted for violating anti-money laundering regulations!
On the evening of March 26, the U.S. Department of Justice revealed on its official website that the cryptocurrency exchange KuCoin and its two founders have been charged with violating the Bank Secrecy Act and unauthorized money transmission. The lawsuit was filed by the U.S. 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, an agent with the Homeland Security Investigations (HSI) office in New York, announced the indictment of KuCoin and its founders, Chun Gan (also known as “Michael”) and Ke Tang (also known as “Eric”). The charges include:
1. Operating an unlicensed money transfer business.
2. Violating the Bank Secrecy Act.
3. Willfully failing to maintain adequate anti-money laundering (AML) programs designed to prevent KuCoin from being used for money laundering and terrorism financing.
4. Willfully failing to maintain reasonable procedures to verify customer identities.
5. Failing to submit any suspicious activity reports.
6. Operating an unlicensed currency transmission business.
U.S. prosecutor Damian Williams explained the indictment as follows: “As the indictment alleges, KuCoin and its founders intentionally concealed the fact that a significant number of U.S. users were trading on the KuCoin platform.”
It is alleged that KuCoin, utilizing its large U.S. customer base, has become one of the world’s largest cryptocurrency derivative and spot trading exchanges, with daily trading volumes reaching billions of dollars and annual trading volumes reaching trillions of dollars. However, financial institutions like KuCoin that take advantage of unique opportunities in the United States must also comply with U.S. laws to help identify and eliminate criminal and corrupt financing schemes. KuCoin, however, deliberately chose not to do so.
It is alleged that KuCoin even failed to implement basic anti-money laundering policies, leading to it becoming a safe haven for illegal money laundering, accepting over $5 billion and transferring over $4 billion in suspicious and criminal funds. This indictment also sends a clear message to other cryptocurrency exchanges: if they plan to serve U.S. customers, they must comply with U.S. laws, plain and simple.
Darren McCormack, the 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 did not comply with the necessary laws to ensure the security and stability of the global digital banking infrastructure.
What other information does the indictment reveal?
According to the disclosed indictment information, FLASHDOT LIMITED (formerly known as Phoenixfin Limited), PEKEN GLOBAL LIMITED, and PHOENIXFIN PRIVATE LIMITED are the three entities that jointly conduct business as the global cryptocurrency exchange KuCoin.
KuCoin has solicited business from U.S. customers through its spot trading platform and the 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 reaching billions of dollars in cryptocurrencies.
KuCoin’s website promotes the exchange’s public rankings, showing that it has risen to the top five globally. One ranking even lists it as the fourth largest cryptocurrency derivatives exchange and the fifth largest cryptocurrency spot exchange. The U.S. Department of Justice believes that KuCoin, Gan, and Tang attempted to serve and, in fact, have served numerous customers located in the United States and the southern region of New York.
Therefore, the U.S. Department of Justice believes that KuCoin needs to register its money transfer business with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury and register with the U.S. Commodity Futures Trading Commission (CFTC) as a money transfer enterprise and futures commission merchant.
In addition, KuCoin must comply with applicable provisions of the Bank Secrecy Act, which requires maintaining proper 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 U.S. Department of Justice also stated that KuCoin attempted to conceal the presence of U.S. customers in order to appear exempt from U.S. 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 did not have U.S. customers. However, KuCoin has a significant U.S. customer base, and in many social media posts, it actively promotes its services to U.S. customers. For example, in a Twitter message in April 2022, KuCoin stated, “KYC is not supported for U.S. users. However, 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.
Is a settlement the likely outcome?
The indictment of cryptocurrency exchanges by the U.S. Department of Justice is not uncommon, and if we look at similar cases in the past, the most likely outcome is a settlement after payment of fines.
The most notable 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 with the U.S. Department of Justice. Binance will also pay a total of $4.368 billion in fines, including $3.4 billion to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury and $968 million from the Office of Foreign Assets Control (OFAC). This settlement marks the end of long-term litigation against CZ and Binance.
After the indictment was disclosed in the U.S., KuCoin posted on social media that its operations are running smoothly and user assets are safe. They have learned about the relevant reports and are currently investigating the details through their lawyers. They also emphasized their respect for the laws and regulations of various countries and strict compliance with compliance standards.
However, KuCoin’s native token KCS experienced a decline. According to Coingecko data, after news of the indictment spread, KCS fell into the $12 range, with a decline of over 12% in 24 hours.
It is worth mentioning that the U.S. Commodity Futures Trading Commission stated in its legal complaint against the operator of the KuCoin cryptocurrency exchange that Bitcoin, Ethereum, and Litecoin are commodities. This may be considered as alternative “good news” for the cryptocurrency industry.
Based on the general response 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 develops.
This article is authorized and reprinted from PANews.
Proofread and edited by: Gao Jingyuan