KuCoin's Two Years of Being "Disliked": Sued by the U.S. and Expelled from Multiple Regions

Author: Mia, ChainCatcher

Editor: Marco, ChainCatcher

On March 26, the U.S. Department of Justice took action against the cryptocurrency exchange KuCoin, charging it and its two founders, Chun Gan and Ke Tang, with "conspiracy to violate the Bank Secrecy Act and conspiracy to operate an unlicensed money transmission business," with each charge carrying a maximum penalty of five years in prison. This is another indictment from the U.S. Department of Justice against the founders of a cryptocurrency exchange following the case involving Binance and its founder Changpeng Zhao.

The U.S. Department of Justice stated that GAN and TANG are still at large.

The indictment shows that the KuCoin platform is accused of deliberately concealing the fact that it has a large number of U.S. users and leveraging this customer base to become a leading cryptocurrency exchange. KuCoin and its two founders conspired to operate an unlicensed money transmission business and conspired to violate the Bank Secrecy Act, intentionally failing to maintain a sufficient anti-money laundering (AML) program designed to prevent KuCoin from being used for money laundering and terrorist financing, not maintaining reasonable customer identification procedures, and failing to submit any suspicious activity reports.

U.S. Attorney Damian Williams stated that as a financial institution operating in the U.S., KuCoin must comply with the law and assist in combating crime and corruption financing. KuCoin's failure to implement anti-money laundering policies has made it a haven for illegal money laundering, involving billions of dollars in suspicious funds, and he warned other cryptocurrency exchanges that if they provide services in the U.S., they must comply with the law.

Following the indictment, multiple addresses withdrew large amounts of cryptocurrency from KuCoin, with over $600 million in net outflow from the platform in the past 24 hours.

Multiple Expulsions by Regulatory Authorities

KuCoin, as an established exchange, was founded by GAN, TANG, and others in September 2017 and launched its futures trading platform in July 2019.

Public information shows that the current CEO of KuCoin, Chun Gan, whose English name is Michael Gan, previously served as a technical expert at Alibaba Group's Ant Financial, a senior professional in financial solutions, and a senior partner at internet giants like MikeCRM and KF5.COM.

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 trading volumes worth billions of dollars.

KuCoin's website promotes itself as one of the top five cryptocurrency exchanges globally, while according to CoinMarketCap data, KuCoin ranks eighth among cryptocurrency derivatives exchanges and seventh among cryptocurrency spot exchanges.

Since its inception, as its market share has expanded, KuCoin has increasingly attracted the attention of regulatory authorities worldwide.

As early as January 2022, due to regulatory issues, KuCoin began an orderly exit of existing users in mainland China.

In June of the same year, the Ontario Securities Commission (OSC) of Canada took enforcement action against KuCoin for failing to comply with Ontario's securities laws, and subsequently, due to allegations of non-cooperation with the OSC's investigation, it was permanently banned from participating in Ontario's capital markets. The OSC also imposed a fine of CAD 2 million (USD 1.5 million) and nearly CAD 100,000 (USD 77,000) in investigation-related costs.

Just two months later, KuCoin was again named by the South Korean government and restricted from conducting deposit and withdrawal activities targeting Korean users due to unreported illegal business activities.

In 2022 alone, KuCoin lost market share in three regions.

By March 2023, KuCoin received a subpoena from the New York Attorney General, accused of offering unregistered securities and commodities, and selling unregistered securities through its lending and staking product KuCoin Earn, with a court order prohibiting KuCoin from operating in New York.

Additionally, the U.S. Department of Justice also accused KuCoin of offering products in New York that violated securities laws, such as the wealth management product KuCoin Earn. Subsequently, in December of the same year, KuCoin paid $22 million in settlement and exited the New York market to resolve the litigation crisis. Since then, KuCoin has lost its foothold in the New York market.

Consideration of Sale

Even before the U.S. Department of Justice lawsuit, KuCoin's operations were already in disarray.

In April 2023, KuCoin's official Twitter account was hacked, and it fully compensated all verified asset losses caused by the social media hack and fraudulent activities. Although there were only 22 related transactions, the hacking of an official Twitter account for a global cryptocurrency exchange undoubtedly represented a significant public relations crisis.

In July of the same year, KuCoin was reported to be laying off nearly 30% of its staff, primarily due to a comprehensive compliance strategy and stricter KYC measures, leading to a decline in profit margins.

In October 2023, KuCoin was listed on the FCA's warning list of "unauthorized" firms by the UK's Financial Conduct Authority. According to UK regulations, companies allowed to conduct cryptocurrency asset activities must be registered with the FCA or obtain temporary operating status. KuCoin also received operational warnings from UK regulatory authorities.

From hacking incidents to layoffs and warnings from UK regulators, KuCoin's operational difficulties have undoubtedly worsened.

According to reports from Wu Blockchain, KuCoin considered stopping operations or selling the exchange in 2023. Meanwhile, to reduce risks, KuCoin accelerated the divestiture of several business lines.

Furthermore, in 2023, KuCoin faced not only a criminal investigation by the U.S. Department of Justice but also multiple investigations within China.

KuCoin had previously been the only major offshore exchange that did not ban U.S. IPs, which posed significant risks. As early as 2022, data research indicated that KuCoin might face immense pressure from the U.S.

According to the U.S. Department of Justice, KuCoin has shown a rather passive attitude toward regulation, never submitting any necessary suspicious activity reports. It wasn't until July 2023, upon learning of the U.S. criminal investigation into its activities, that KuCoin initiated KYC procedures for new customers.

Over $600 Million Net Outflow in 24 Hours

In response to the lawsuit, KuCoin stated that the platform is operating normally, user assets are absolutely secure, and it has noted the relevant reports and is seeking details through legal channels.
According to on-chain data from Nansen, KuCoin experienced a net outflow of $649 million in tokens over the past seven days, with a net outflow of $641 million in just the past 24 hours.

Meanwhile, some large asset holders have begun withdrawing funds from KuCoin and transferring assets to other trading platforms.

According to Lookonchain monitoring, multiple large asset addresses have withdrawn funds from KuCoin, including an address starting with "0x1abc," which withdrew 54 million USDT from KuCoin and transferred it to the OKX platform within the past 9 hours; another address starting with "0x5212" also withdrew 32 million USDT from KuCoin and transferred it to the Bybit platform within 50 minutes.

Despite facing pressure from capital outflows, KuCoin still holds a considerable amount of cryptocurrency assets, totaling approximately $6.137 billion, including 1.36 billion USDT, 14,353 BTC (approximately $1.01 billion), 107,732 ETH (approximately $389 million), 18.57 million KCS (approximately $231 million), and 955,752 SOL (approximately $182 million).