The recent accusations against major cryptocurrency exchange KuCoin and its founders, Chun Gan and Ke Tang, have shed light on the alleged failure to implement anti-money laundering (AML) and know-your-customer (KYC) procedures. Prosecutors in the United States have claimed that this negligence allowed the platform to become a hub for laundering illicit funds from criminal activities.
In a press release on March 26, it was revealed that KuCoin was operating as an unlicensed money-transmitting business, in violation of the Bank Secrecy Act. The exchange and its founders reportedly served customers in the US without registering with the Financial Crimes Enforcement Network (FinCEN) as a money-transmitting firm. Additionally, they failed to register with the Commodity Futures Trading Commission (CFTC) while operating as a futures commission merchant.
One of the most concerning aspects of the allegations is that KuCoin and its founders deliberately concealed the presence of US customers on the platform. The prosecutors claim that at one point, KuCoin falsely denied having any users from the United States. This strategy was allegedly used to attract customers who desired anonymity, as the lack of KYC verification on KuCoin was seen as a selling point for those seeking privacy.
US Attorney Damian Williams stated that KuCoin leveraged its sizable US customer base to become one of the world’s largest cryptocurrency exchanges. However, this success came at a cost, as the exchange was allegedly used as a vehicle to launder large sums of criminal proceeds, including funds from darknet markets, malware, ransomware, and fraud schemes. The prosecution claimed that since its inception, KuCoin has facilitated the laundering of over $4 billion in illicit funds.
Following the announcement of the allegations, KuCoin experienced significant repercussions. Data from Nansen indicated that the exchange saw close to $800 million in net outflows within the first 12 hours of the news breaking. Additionally, KuCoin’s native token (KCS) plummeted by approximately 13% in response to the charges.
The charges against Gan and Tang carry a maximum prison sentence of five years each. However, at the time of the indictment, the KuCoin founders were reportedly at large. It is worth noting that KuCoin previously paid a $22 million fine as part of a settlement with the New York Attorney General and subsequently exited the New York market. This incident bears resemblance to similar charges brought against Binance, another prominent cryptocurrency exchange, which resulted in a guilty plea and a $4.3 billion settlement with the Department of Justice.
The allegations against KuCoin and its founders highlight the critical importance of implementing robust AML and KYC procedures in the cryptocurrency industry. Failure to comply with these regulations not only poses significant legal risks but also jeopardizes the integrity and reputation of exchanges within the market. It is imperative for exchanges to prioritize transparency and regulatory compliance to ensure the sustainable growth and legitimacy of the cryptocurrency ecosystem.