Crypto's Wild West: The KuCoin Crackdown Heralds a Warning

Cryptocurrency prices took a turn for the worse on Tuesday afternoon after the Commodity Futures Trading Commission (CFTC) and the U.S. Attorney’s Office for the Southern District of New York filed charges against the KuCoin crypto exchange for Bank Secrecy Act and unlicensed money transmission offenses. 

According to a release for the CFTC, the agency has filed a civil enforcement action in the New York Court charging Mek Global Limited, PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited, which collectively operate a centralized digital asset exchange under the name KuCoin, with multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations.

The complaint alleged KuCoin is guilty of multiple infractions, including “illegally dealing in off-exchange commodity futures transactions and leveraged, margined, or financed retail commodity transactions and soliciting and accepting orders for commodity futures, swaps, and leveraged, margined, or financed retail commodity transactions without registering with the CFTC as a futures commission merchant (FCM).” 

They also charged KuCion with operating a “facility for the trading or processing of swaps without registering with the CFTC as a swap execution facility (SEF) or designated contract market (DCM); and [a failure] to implement an effective customer identification program (CIP),” the release said. 

“For too long, some offshore crypto exchanges have followed a now-familiar playbook by offering derivative products and falsely claiming people in the United States cannot use their platforms when, in reality, anyone in the U.S. with commonly used technology can trade without providing basic customer identifying information,” said Director of Enforcement Ian McGinley. “As made clear by the CFTC’s action today, the CFTC will charge such entities with failing to register with the CFTC and failing to comply with the agency’s rules that protect U.S. customers and prevent and detect terrorist financing and money laundering.” 

To settle the charges, the CFTC seeks disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations. 

The New York Court also unsealed an indictment against KuCoin and two of its founders, Chun Gan and Ke Tang, “for conspiring to operate an unlicensed money transmitting business and conspiring to violate the Bank Secrecy Act.” 

Damian Williams, the United States Attorney for the Southern District of New York, and Darren McCormack, the Acting Special Agent in Charge of the New York Field Office of Homeland Security Investigations, brought the charges forward, saying KuCoin and the founders “willfully failed to maintain an adequate anti-money laundering (“AML”) program designed to prevent KuCoin from being used for money laundering and terrorist financing, failing to maintain reasonable procedures for verifying the identity of customers, and failing to file any suspicious activity reports.”

KuCoin is also charged with operating an unlicensed money-transmitting business and a substantive violation of the Bank Secrecy Act.

“As a result of KuCoin’s willful failures to maintain the required AML and KYC programs, KuCoin has been used as a vehicle to launder large sums of criminal proceeds, including proceeds from darknet markets and malware, ransomware, and fraud schemes,” a press release from the Department of Justice said. “Since its founding in 2017, KuCoin has received over $5 billion, and sent over $4 billion, of suspicious and criminal proceeds.”

“Many KuCoin customers used its trading platform specifically because of the anonymity of the services it provided,” they added. “In other words, KuCoin’s no-KYC policy was integral to its growth and success.”

“As today’s Indictment alleges, KuCoin and its founders deliberately sought to conceal the fact that substantial numbers of U.S. users were trading on KuCoin’s platform,” said U.S. Attorney Damian Williams. “Indeed, KuCoin allegedly took advantage of its sizeable U.S. customer base to become one of the world’s largest cryptocurrency derivatives and spot exchanges, with billions of dollars of daily trades and trillions of dollars of annual trade volume.”

“But financial institutions like KuCoin that take advantage of the unique opportunities available in the United States must also comply with U.S. law to help identify and drive out crime and corrupt financing schemes,” he said. “KuCoin allegedly deliberately chose not to do so.”

“As alleged, in failing to implement even basic anti-money laundering policies, the defendants allowed KuCoin to operate in the shadows of the financial markets and be used as a haven for illicit money laundering, with KuCoin receiving over $5 billion and sending over $4 billion of suspicious and criminal funds,” Williams said. “Crypto exchanges like KuCoin cannot have it both ways. Today’s Indictment should send a clear message to other crypto exchanges: if you plan to serve U.S. customers, you must follow U.S. law, plain and simple.”

This article originally appeared on Kitco News