The recent criminal charges filed against KuCoin and two of its founders, Chun Gan and Ke Tang, have sent shockwaves through the global cryptocurrency community. Prosecutors in Manhattan accused KuCoin of violating U.S. anti-money-laundering laws, alleging violations of the Bank Secrecy Act and operating an unlicensed money transmitting business, among other charges. The U.S. Commodity and Futures Trading Commission (CFTC) also filed civil charges against KuCoin for operating as an illegal digital asset derivatives exchange and multiple violations of the Commodity Exchange Act.
If convicted, Gan and Tang, both Chinese citizens, could face up to 10 years in prison. KuCoin, which operates as a cryptocurrency exchange, is facing severe scrutiny over its compliance standards and alleged failures in anti-money laundering controls. The indictment accuses the exchange of intentionally neglecting to establish adequate measures to prevent its platform from being exploited for terrorist financing and other illicit financial activities. Prosecutors further claim that KuCoin failed to implement sufficient identity verification procedures for its customers and neglected to file suspicious activity reports (SARs) as required by law.
The charges paint a troubling picture of KuCoin’s operations, alleging that the exchange facilitated over $5 billion in suspicious and criminal proceeds since 2017, with a similar amount sent out during the same period. Despite the legal troubles, KuCoin’s Chief Executive, Johnny Lyu, sought to reassure users, stating that the platform remains operational and that customer assets are secure. However, the exchange’s future remains uncertain as it navigates through the legal proceedings.
Founded in September 2017 by Gan and Tang, KuCoin initially operated as a spot trading platform before expanding to offer derivatives trading services in 2019. The exchange is collectively operated by several entities, including PhoenixFin, Flashdot, and Peken Global. As the legal battle unfolds, the cryptocurrency industry will closely monitor the developments surrounding KuCoin, underscoring the increasing regulatory scrutiny faced by digital asset exchanges worldwide.
The recent criminal charges against KuCoin and its founders shed light on the exchange’s significant growth and regulatory challenges. Despite its rapid expansion, serving over 30 million customers and handling billions of dollars’ worth of cryptocurrency trades daily, KuCoin faces serious allegations from U.S. prosecutors regarding its compliance with financial regulations.
Prosecutors assert that KuCoin actively sought business from U.S. customers without registering with the appropriate regulatory authorities, such as the U.S. Commodity and Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN). The exchange failed to register as a futures commission merchant with the CFTC and neglected to register as a money transmitting business with FinCEN, as required by law for cryptocurrency exchanges operating in the U.S.
Furthermore, prosecutors claim that KuCoin, along with its founders Chun Gan and Ke Tang, knowingly disregarded U.S. compliance requirements. Despite being aware of these obligations, the exchange chose to ignore them, opting instead to flout regulatory standards. Notably, KuCoin did not implement a know-your-customer (KYC) program until notified of a federal criminal investigation in July 2023. Even then, the KYC requirements were only applied to new customers, leaving earlier customers without adequate identity verification measures.
This isn’t the first time KuCoin has faced regulatory scrutiny. In December, the exchange agreed to a $22 million settlement and ceased operations in New York following a lawsuit filed by the state’s attorney general’s office in March 2023. The lawsuit alleged that KuCoin operated as an unregistered exchange in the state, highlighting a pattern of regulatory non-compliance.
As KuCoin grapples with mounting legal challenges, its future remains uncertain, and the outcome of the criminal charges could have significant implications for the broader cryptocurrency industry. The case underscores the growing importance of regulatory compliance in the crypto space and the need for exchanges to adhere to stringent financial regulations to maintain trust and credibility in the market.