Founder of KuCoin cryptocurrency exchange faces prosecution for violating anti-money laundering regulations!
On the evening of March 26th, the US Department of Justice revealed on its official website that the cryptocurrency exchange KuCoin and its two founders have been charged with violations of 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 prosecution of 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 remittance 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 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
According to US prosecutor Damian Williams, “As alleged in today’s indictment, KuCoin and its founders intentionally concealed the fact that a substantial amount of US users were trading on the KuCoin platform. It is alleged that KuCoin, taking advantage of its large US customer base, has become one of the world’s largest cryptocurrency derivatives and spot trading platforms, with daily trading volumes reaching billions of dollars and annual trading volumes reaching trillions of dollars. However, financial institutions like KuCoin that capitalize on unique opportunities in the US must also comply with US laws to help identify and eliminate criminal and corrupt financing schemes, but KuCoin intentionally chose not to do so.”
It is alleged that KuCoin even failed to implement basic anti-money laundering policies, resulting in it becoming a safe haven for illegal money laundering, accepting over $5 billion and exporting over $4 billion of suspicious and criminal funds. This prosecution also serves as 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 provided services to over 30 million customers, but the investigation found that the exchange failed to comply with the laws necessary to ensure the security and stability of 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 the three entities jointly conducting business as the global cryptocurrency exchange KuCoin.
KuCoin solicits business from US 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 of billions of dollars in cryptocurrencies. KuCoin’s website promotes the exchange’s public rankings, showing that it has climbed into the top five globally. One public ranking even lists it as the fourth largest cryptocurrency derivatives exchange and the fifth largest cryptocurrency spot trading exchange. The US Department of Justice believes that KuCoin, GAN, and TANG attempted to serve and have actually 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 transmission business with the Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury and register with the US Commodity Futures Trading Commission (CFTC) as a money transfer company and futures commission merchant.
In addition, KuCoin must comply with the applicable provisions of the Bank Secrecy Act, which require 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 in order to appear unconstrained by US AML and KYC requirements.
According to the indictment, in 2022, KuCoin lied to at least one investor about the location of its customers, claiming that it did not have US customers. However, KuCoin actually has a large US customer base and actively promotes to US customers on various social media platforms. For example, in a Twitter message in April 2022, KuCoin stated, “KYC is not supported for US users, but regular trading can be done using unverified accounts.” This suggests that KuCoin’s policy of not requiring KYC is crucial to its growth and success.
Will it end in a settlement?
Prosecutions of cryptocurrency exchanges by the US Department of Justice are not uncommon, 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 with the US 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 US Department of the Treasury and $968 million to the Office of Foreign Assets Control (OFAC). This settlement marks the end of long-term litigation against CZ and Binance.
After the disclosure of the prosecution in the US, KuCoin posted on social media that it is operating well and the user’s assets are secure. It stated that it is aware of the relevant reports and is currently investigating the details with lawyers. It also emphasized that it respects the laws and regulations of all countries and strictly complies with compliance standards.
However, KuCoin’s native token KCS has experienced a decline. According to Coingecko data, after the news of the lawsuit came out, KCS fell to the $12 range, with a decrease of over 12% in 24 hours.
It is worth mentioning that the US 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 “good news” for the cryptocurrency industry.
Based on the general response from the crypto community, it is possible that there may be a possibility of a settlement between the two parties. We will have to wait and see how the situation develops.
This article is authorized for reprinting from PANews.
Proofread and edited by: Gao Jingyuan
