Cybersecurity Policy Report, S.D.N.Y.: Charged with unlicensed money transmission, Kucoin will pay $300 million, (Jan 28, 2025)
As part of the settlement with the DOJ, Kucoin will stay out of the U.S. market for at least two years.
Kucoin has settled charges related to its being used to transmit the proceeds of ransomware and other criminal activities. The crypto exchange pleaded guilty to charges brought by the U.S. Attorney's Office for the Southern District of New York arising from ignoring anti-money laundering laws, failing to report suspicious transactions, and failing to register with FinCEN. Kucoin pleaded guilty to one count of operating an unlicensed money transmitting business, will pay money penalties of over $297 million, and exit the U.S. market for at least two years.
Kucoin was founded in September 2017 and has become one of the largest cryptocurrency exchange platforms in the world. Between September 2017 and March 2024, approximately 1.5 million Kucoin users were registered in the U.S., and the exchange earned approximately $184.5 million in fees from those users.
Kucoin's platform allows users to spot trade cryptocurrencies like Bitcoin and Ethereum and to place orders for futures contracts and other derivates tied to the value of those cryptocurrencies. Because of this, Kucoin has always been a money transmitting business and was required to register with FinCEN and to report suspicious transactions. The exchange was also required to company with Bank Secrecy Act provisions, such as maintaining an anti-money laundering ("AML") program and conducting know-your-customer ("KYC") processes.
Unlicensed business. In March 2024, the DOJ unsealed an indictment against Kucoin and two of its founders, Chun Gan and Ke Tang, for conspiring to operate an unlicensed money transmitting business and to violate the Bank Secrecy Act. Kucoin failed to adhere to U.S. AML requirements by, for example, failing to implement a KYC. The company never filed any suspicious activity reports, never registered with the CFTC as a futures commission merchant, and never registered with FinCEN as a money transmitting business, at least through the end of 2023.
According to the indictment, Kucoin affirmatively tried to conceal that it had U.S. customers in order to appear exempt from U.S. anti-money laundering and know-your-customer requirements. In fact, Kucoin marketed itself as a place where U.S. customers could trade using an unverified account, and many of its customers used Kucoin specifically for that reason.
As a result, Kucoin was used as a vehicle for money laundering, including the proceeds from darknet markets, malware, ransomware, and fraud schemes. Since 2017, Kucoin received and sent nearly $10 billion in suspicious and criminal proceeds.
A Seychelles-based entity, Peken Global Limited, has operated Kucoin since September 2019. Peken pleaded guilty to one count of operating an unlicensed money transmitting business. In addition, Peken agreed to criminally forfeit $184.5 million and pay a criminal fine of approximately $112.9 million.
U.S. Attorney Danielle R. Sassoon said: "For years, Kucoin avoided implementing required anti-money laundering policies designed to identify criminal actors and prevent illicit transactions. As a result, Kucoin was used to facilitate billions of dollars' worth of suspicious transactions and to transmit potentially criminal proceeds, including proceeds from darknet markets and malware, ransomware, and fraud schemes. Today's guilty plea and penalties show the cost of refusing to follow these laws and allowing unlawful activity to continue."
Co-founders. Gan and Tang are both Chinese citizens. Each was charged with one count of conspiring to violate the Bank Secrecy Act and one count of conspiring to operate an unlicensed money laundering business. Each charge carries a five-year maximum sentence. Gan and Tang will no longer have any role in Kucoin's management or operations, and each agreed to forfeit approximately $2.7 million in funds received from Kucoin's U.S. operations. the DOJ agreed to defer prosecution against them for two years.
LitigationEnforcement: Blockchain CommodityFutures CyberPrivacyFeed LitigationEnforcement Enforcement ExchangesMarketRegulation NewYorkNews DataPrivacy DataSecurity