PEKEN Global Limited (“PEKEN”), the Seychelles-based operator of crypto exchange KuCoin, pled guilty to operating an unlicensed money transmitting business in the U.S. and agreed to pay nearly $300 million in fines and forfeitures. The plea, announced by Danielle Sassoon, the United States Attorney for the Southern District of New York, highlights significant breaches of U.S. anti-money laundering (AML) and know-your-customer (KYC) regulations.
Bank Secrecy Act (“BSA”) Violations
Since its founding in 2017, KuCoin has grown into a major cryptocurrency exchange, boasting over 30 million customers and billions in daily trading volume. However, from 2017 to 2024, KuCoin failed to meet key legal requirements for financial institutions operating in the United States, including failing to register with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) as a money transmitting business.
Consequently, KuCoin failed to implement effective AML and KYC programs, allowing the platform to become a haven for illicit transactions, and also neglected to report suspicious transactions as required by the Bank Secrecy Act.
Until July 2023, KuCoin did not require customers to provide identifying information, effectively creating a haven for bad actors. Even after implementing KYC requirements in August 2023, the policy applied only to new and certain existing customers, allowing many pre-existing users to continue trading without proper verification.
To make matters worse, KuCoin failed to file suspicious activity reports for transactions that should have raised red flags. The platform’s deficiencies facilitated billions of dollars in suspicious and potentially criminal transactions, including proceeds from darknet markets, ransomware, fraud schemes, and other illicit activities.
Despite its substantial presence in the U.S., KuCoin ignored legal obligations for years and eventually paid the price.
The Costs of Doing Business, Illegitimately
As part of its guilty plea, PEKEN agreed to pay roughly $113 million in fines and forfeit an additional $184.5 million. PEKEN and KuCoin have also agreed to cease operations in U.S. markets for at least the next two years. This comes at a particularly costly time as the U.S. is shifting towards a more friendly crypto environment.
Its cofounders, Chun Gan and Ke Tang, were also barred from any role in KuCoin’s management or operations and each agreed to forfeit approximately $2.7 million in funds received as a result of KuCoin’s U.S. operations.
In a related agreement, prosecutors have deferred charges against Gan and Tang for two years, contingent on compliance with the terms of the plea agreement.
Old Regulations in the New Age
Despite the U.S. adopting a more welcoming stance towards crypto, U.S. Attorney Danielle Sassoon issued a clear warning that existing laws will continue to apply cryptocurrency, at least for the time being: “[t]oday’s guilty plea and penalties show the cost of refusing to follow these laws and allowing unlawful activity to continue.”
This case paralleled the CFTC’s action against KuCoin, and yet again underscores the U.S. government’s commitment to holding cryptocurrency platforms accountable for compliance with financial regulations, this time with respect to the Bank Secrecy Act. The penalties and operational restrictions imposed on KuCoin send a strong signal to other exchanges about the risks of flouting AML and KYC requirements.
While the cryptocurrency industry continues to evolve, and new regulations come into play, KuCoin serves as a reminder that even the largest players must adhere to established financial laws or face significant consequences.
As attorneys operating exclusively in the digital asset space, we understand the importance of staying informed on the latest developments and helping clients stay compliant as cryptocurrency’s future in the United States continues to be shaped by regulatory developments. Whether you are an investor, entrepreneur, or business involved in cryptocurrency, our team is here to provide the legal counsel needed to maneuver this complex landscape. If you believe we can be of assistance, schedule a consultation here.