Binance second? The U.S. Department of Justice fully discloses multiple criminal charges against KuCoin and its two founders

Editor: Wu Says Blockchain

Original link: https://www.justice.gov/usao-sdny/pr/prominent-global-cryptocurrency-exchange-kucoin-and-two-its-founders-criminally

KuCoin and its two founders, Chun Gan and Ke Tang, ignored U.S. anti-money laundering laws and developed KuCoin into one of the largest cryptocurrency exchanges in the world.

U.S. Attorney Damian Williams for the Southern District of New York and Acting Special Agent Darren McCormack of the Department of Homeland Security's New York field office announced today the indictment of global cryptocurrency exchange KuCoin and its two founders, CHUN GAN (alias "Michael") and KE TANG (alias "Eric"), for conspiring to operate an unlicensed money transmitting business and conspiring to violate the Bank Secrecy Act by failing to maintain adequate anti-money laundering procedures to prevent KuCoin from being used for money laundering and financing terrorism, failing to maintain reasonable procedures to verify customer identities, and failing to submit any suspicious activity reports. KuCoin is also charged with operating an unlicensed money transmitting business and substantially violating the Bank Secrecy Act. GAN and TANG remain at large.

U.S. Attorney Damian Williams stated, "As alleged in today's indictment, KuCoin and its founders deliberately attempted to conceal the fact that a significant number of U.S. users were trading on the KuCoin platform. In fact, KuCoin allegedly became one of the largest cryptocurrency derivatives and spot exchanges in the world, with daily trading volumes reaching billions of dollars and annual trading volumes in the trillions, by leveraging its vast U.S. customer base. However, financial institutions like KuCoin, which exploit unique opportunities available in the U.S., must also comply with U.S. laws to help identify and root out criminal and corrupt financing schemes. KuCoin allegedly chose not to do so. It is alleged that by failing to implement the most basic anti-money laundering policies, the defendants allowed KuCoin to operate in the shadows of the financial markets, becoming a haven for illegal money laundering, with KuCoin receiving over $5 billion and sending over $4 billion in suspicious and criminal funds. Cryptocurrency exchanges like KuCoin cannot have it both ways. Today's indictment should send a clear message to other cryptocurrency exchanges: If you plan to serve U.S. customers, you must follow U.S. laws, plain and simple."

Acting Special Agent Darren McCormack of the Department of Homeland Security said, "Today, we have exposed one of the largest cryptocurrency exchanges in the world, and our investigation has revealed that it is, in fact, a suspected multi-billion dollar criminal conspiracy. Despite allegedly failing to comply with the laws necessary to ensure the safety and stability of our global digital banking infrastructure, KuCoin has grown to serve over 30 million customers. The defendants' alleged pattern of evading these critical laws has finally come to an end. I commend the El Dorado Task Force of DHS New York and our law enforcement partners for their commitment."

According to the allegations in the indictment and KuCoin's statements on its website:

FLASHDOT LIMITED (formerly known as "Phoenixfin Limited"), PEKEN GLOBAL LIMITED, and PHOENIXFIN PRIVATE LIMITED are three entities that jointly operate the global cryptocurrency exchange KuCoin. GAN and TANG founded KuCoin in September 2017.

KuCoin attracted business from U.S. customers through its spot trading platform and later launched its futures trading platform in July 2019. Since its establishment in 2017, KuCoin has become one of the largest cryptocurrency trading platforms in the world, with over 30 million customers and daily cryptocurrency trading volumes worth billions of dollars. KuCoin's website promotes it as one of the top five cryptocurrency exchanges globally. One public ranking lists KuCoin as the fourth largest cryptocurrency derivatives exchange and the fifth largest cryptocurrency spot exchange. KuCoin, GAN, and TANG aimed to serve, and in fact have served, numerous customers located in the U.S. and the Southern District of New York.

Therefore, at all relevant times, KuCoin has been a money transmitting business required to register with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury, and since July 2019, has been a futures commission merchant (FCM) required to register with the Commodity Futures Trading Commission (CFTC). As a money transmitting business and futures commission merchant, KuCoin was required to comply with applicable provisions of the Bank Secrecy Act, which mandate the maintenance of adequate anti-money laundering procedures, including customer identity verification or know your customer (KYC) processes. AML and KYC procedures ensure that financial institutions like KuCoin are not used for illegal purposes, including money laundering.

GAN, TANG, and KuCoin knew their AML obligations in the U.S. but deliberately chose to ignore these requirements. For example, KuCoin failed to implement adequate KYC procedures. In fact, until at least July 2023, KuCoin did not require customers to provide any identifying information. Only in July 2023, after KuCoin was informed of a federal criminal investigation into its activities, did KuCoin belatedly adopt KYC procedures for new customers. However, this KYC process applied only to new customers and did not apply to KuCoin's millions of existing customers, including a large number located in the U.S. KuCoin also never submitted any necessary suspicious activity reports, never registered with the CFTC as a futures commission merchant, and at least until the end of 2023, never registered with FinCEN as a money transmitting business.

In fact, GAN, TANG, and KuCoin actively attempted to hide the existence of KuCoin's U.S. customers to make it appear that KuCoin was not subject to U.S. AML and KYC requirements. Although KuCoin collected and tracked customer location information, KuCoin actively prevented its U.S. customers from identifying themselves when opening KuCoin accounts. Furthermore, KuCoin lied to at least one investor in 2022 about the location of its customers, falsely stating that it had no U.S. customers, when in fact, KuCoin had a significant U.S. customer base. In reality, in multiple social media posts, KuCoin actively marketed itself to U.S. customers as an exchange where they could trade without KYC. For example, in an April 2022 tweet, KuCoin stated, "KYC does not support U.S. users, however, KYC is not mandatory on KuCoin. Regular trades can be completed using unverified accounts—"

Due to KuCoin's deliberate failure to maintain the required AML and KYC procedures, KuCoin was used as a tool to launder vast amounts of criminal proceeds, including proceeds from darknet markets and malware, ransomware, and fraud schemes. Since its establishment in 2017, KuCoin has received over $5 billion and sent over $4 billion in suspicious and criminal proceeds. Many KuCoin customers specifically used its trading platform because of the anonymity it offered. In other words, KuCoin's no KYC policy was critical to its growth and success.

GAN, 34, and TANG, 39, are both Chinese nationals, each charged with one count of conspiracy to violate the Bank Secrecy Act and one count of conspiracy to operate an unlicensed money transmitting business, each carrying a maximum penalty of five years in prison.

The entities FLASHDOT LIMITED, registered in the Cayman Islands; PEKEN GLOBAL LIMITED, registered in the Republic of Seychelles; and PHOENIXFIN PRIVATE LIMITED, registered in Singapore, jointly operate under the name "KuCoin," with each charged with one count of conspiracy to violate the Bank Secrecy Act, carrying a maximum penalty of five years in prison; one count of conspiracy to operate an unlicensed money transmitting business, carrying a maximum penalty of five years in prison; one count of violating the Bank Secrecy Act, carrying a maximum penalty of ten years in prison; and one count of operating an unlicensed money transmitting business, carrying a maximum penalty of five years in prison.

The maximum potential penalties in this case are prescribed by Congress and are for reference only, as the final sentencing of the defendants will be determined by the judge.

Mr. Williams praised the outstanding investigative work of the El Dorado Task Force of DHS New York. Mr. Williams further thanked the Commodity Futures Trading Commission for today’s parallel civil suit against KuCoin.

This matter is being handled by the office's Illegal Finance and Money Laundering Unit. Assistant U.S. Attorneys Emily Deininger and David R. Felton are responsible for the prosecution of this case.

The charges in the indictment are merely allegations, and the defendants are presumed innocent until proven guilty.

KuCoin's Response:

KuCoin is operating well, and our users' assets are absolutely secure. We have been made aware of the relevant reports and are currently investigating the details through our lawyers. KuCoin respects the laws and regulations of all countries and strictly adheres to compliance standards.

Full text of the CFTC civil suit:

https://www.cftc.gov/PressRoom/PressReleases/8884-24

The Commodity Futures Trading Commission (CFTC) announced today that it has filed a civil enforcement action in the U.S. District Court for the Southern District of New York, charging Mek Global Limited, PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited with operating a centralized digital asset exchange under the name KuCoin in violation of multiple provisions of the Commodity Exchange Act (CEA) and CFTC regulations.

The complaint alleges that KuCoin illegally engaged in off-exchange commodity futures trading, leveraged, margin, or financing for retail commodity transactions; solicited and accepted orders for commodity futures, swaps, and leveraged, margin, or financing for retail commodity transactions without being registered as a futures commission merchant (FCM); failed to diligently supervise its FCM activities; operated a facility for trading or processing swaps without being registered as a swap execution facility (SEF) or designated contract market (DCM); and failed to implement effective customer identification programs (CIP).

The CFTC seeks to recover illegal proceeds, civil monetary penalties, permanent trading and registration bans, and permanent injunctions against further violations of the CEA and CFTC regulations in its ongoing litigation against KuCoin.

Enforcement Director Ian McGinley stated, "For too long, some overseas cryptocurrency exchanges have followed a now-familiar script, offering derivatives and falsely claiming that Americans cannot use their platforms, when in reality, any American using common technology can trade without providing basic customer identity information."

McGinley continued, "As the CFTC's actions today and its previous enforcement actions have made clear, the CFTC's script should now also be familiar—CFTC will charge these entities for failing to register with the CFTC and for not complying with the agency's rules designed to protect U.S. customers and prevent and detect terrorist financing and money laundering."

Case Background

According to the complaint, from approximately July 2019 to approximately June 2023, KuCoin provided and executed commodity derivatives and leveraged, margin, or financing commodity transactions for U.S. users without implementing the required KYC compliance procedures. The complaint further alleges that although KuCoin claims to have implemented KYC procedures, these procedures were, in fact, false and did not prevent U.S. customers from trading commodity interests and derivatives on the platform.

The complaint also alleges that self-identified U.S. customers were allowed to trade commodity futures, swaps, and leveraged, margin, or financing commodity transactions on the exchange, in violation of the CEA and CFTC regulations. During the relevant period, KuCoin did not impose any IP address restrictions to prevent U.S. customers from trading commodity interests, nor did it account for commonly used technologies such as virtual private networks (VPNs) that could bypass IP address restrictions.