KuCoin and Founders Charged with Major Violations of U.S. Anti-Money Laundering Laws

The United States Department of Justice (DOJ) has taken legal action against the global cryptocurrency exchange KuCoin and two of its founders, Chun Gan and Ke Tang, for a series of significant breaches of anti-money laundering (AML) regulations. The charges, announced by Damian Williams, the U.S. Attorney for the Southern District of New York, shed light on KuCoin’s alleged failure to implement essential AML protocols, enabling the platform to be exploited for money laundering and terrorist financing activities.

According to the indictment, KuCoin deliberately concealed the significant presence of U.S. users on its platform, despite leveraging its substantial U.S. customer base to become one of the world’s largest cryptocurrency exchanges. This strategic oversight allowed KuCoin to operate without adhering to crucial U.S. banking secrecy and money transmission laws, creating an environment conducive to illicit fund flows.

Investigations uncovered that KuCoin’s operations facilitated the movement of over $5 billion in suspicious and criminal funds, a consequence of its deficient know-your-customer (KYC) process. It wasn’t until July 2023, following a federal criminal investigation, that KuCoin implemented a KYC program. However, critics, including the DOJ, have criticized the program’s limited scope and delayed introduction.

The DOJ’s crackdown on KuCoin is accompanied by a parallel civil enforcement action from the U.S. Commodity Futures Trading Commission (CFTC), which charges KuCoin with operating an illegal digital asset derivatives exchange. The CFTC’s complaint alleges multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations, asserting that KuCoin executed commodity derivatives transactions involving U.S. individuals without implementing mandatory KYC compliance procedures.

Furthermore, the CFTC accuses KuCoin of falsely claiming to have instituted KYC procedures while allowing U.S. customers to use the platform freely. The agency contends that KuCoin failed to impose IP address restrictions to prevent U.S. customers from accessing the exchange, highlighting a significant lapse in regulatory compliance.

The DOJ’s charges against KuCoin and its founders have had a considerable impact on the exchange’s native cryptocurrency, KuCoin Shares (KCS), which experienced a significant drop in value following the announcement. This legal ordeal underscores the increasing scrutiny faced by cryptocurrency exchanges and their executives, as regulatory authorities intensify efforts to enforce compliance with AML and KYC regulations.

The charges against KuCoin and its founders carry severe penalties, including a maximum sentence of five years in prison for conspiring to violate the Bank Secrecy Act and conspiring to operate an unlicensed money-transmitting business. Additionally, KuCoin faces potential civil monetary penalties and regulatory sanctions from the CFTC, further jeopardizing its operations and reputation within the cryptocurrency ecosystem.