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KuCoin, a Seychelles-based crypto exchange, will face significant penalties after pleading guilty to operating as an unregistered money services business (MSB) in the US.
In addition, KuCoin founders Chun Gan and Ke Tang, both Chinese nationals, have each agreed to forfeit $2.7m in funds received as a result of the company's illegal US operations. The company must also exit the US market for at least two years.
Since its founding in 2017, KuCoin has grown to become one of the largest world’s crypto exchanges, with a total user base of more than 30m and an average daily trading volume in excess of $1bn.
Between 2017 and March 2024, when the company and its founders were indicted, KuCoin served 1.5m registered users who were located in the US, and earned almost $185m in transaction fees from these users.
However, despite facilitating US money transmission, KuCoin failed to register with the Financial Crimes Enforcement Network (FinCEN) as an MSB, as required by law.
Under the Bank Secrecy Act, KuCoin was further required to maintain an effective anti-money laundering (AML) programme, impose know your customer (KYC) controls and report suspicious transactions to FinCEN.
According to the Department of Justice (DOJ), KuCoin “flouted” all of these requirements and never filed a single suspicious activity report (SAR).
Up until July 2023, KuCoin onboarded US customers to the platform without requiring any identifying information.
The company's employees also repeatedly stated on social media that KYC was not mandatory on its platform, including in direct response to users who identified themselves as based in the US.
It was only in August 2023 that KuCoin adopted a mandatory KYC requirement for new customers and existing customers who wanted to continue trading on the platform.
As a result of its failure to maintain AML and KYC programmes, the DOJ said that KuCoin was used to transmit billions of dollars of suspicious transactions and potentially criminal proceeds.
Likely sources of these illicit funds include proceeds from darknet markets, malware and ransomware attacks, and fraud schemes.
