Following Binance, KuCoin is sued by the U.S. Department of Justice

On March 26, the U.S. Department of Justice once again took action against a cryptocurrency exchange, charging KuCoin and its two founders, Chun Gan and Ke Tang, with “conspiracy to violate the Bank Secrecy Act and conspiracy to operate an unlicensed money transmitting business.” Each charge carries a maximum sentence of five years in prison. This comes as another indictment by the U.S. Department of Justice against founders of cryptocurrency exchanges, following the case of Binance and its founder, Changpeng Zhao.

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

What Laws Did Kucoin Violate？

According to a news release from the U.S. Department of Justice, KuCoin and its founders are being charged with conspiring to operate an unlicensed money transmitting business and conspiring to violate the Bank Secrecy Act. The charges involve intentionally failing to maintain adequate anti-money laundering (AML) procedures aimed at preventing KuCoin from being used for money laundering and financing terrorist activities, failing to maintain reasonable procedures to verify customer identities, and not submitting any suspicious activity reports. KuCoin is also accused of operating an unlicensed money transmitting business and materially violating the Bank Secrecy Act.

It is noteworthy that the indictment does not include the U.S. SEC, and therefore does not include SEC's common reasons for prosecuting cryptocurrencies – selling unregistered securities – as securities-related matters are not within the jurisdiction of this indictment.

The indictment states that KuCoin intentionally evaded U.S. AML and Know Your Customer (KYC) regulations by falsely claiming that it had no U.S. customers, when in reality, KuCoin had a significant number of U.S. customers. The indictment alleges that KuCoin allowed its platform to be used for laundering more than $9 billion.

KuCoin solicited business from U.S. customers through its spot trading platform and later, its futures trading platform launched in July 2019. Since its establishment in 2017, KuCoin has become one of the world's largest cryptocurrency trading platforms, with over 30 million customers and daily cryptocurrency trading volumes reaching billions of dollars. KuCoin's website boasts its ranking among the top five cryptocurrency exchanges globally, with one ranking listing KuCoin as the fourth-largest cryptocurrency derivatives exchange and the fifth-largest spot exchange.

In a statement released by the Department of Justice, the founders and KuCoin entities were aware of their AML obligations in the U.S. but intentionally chose to ignore these requirements: KuCoin failed to implement a sufficient Know Your Customer (KYC) procedure. In fact, KuCoin did not require customers to provide any identification information until at least July 2023. It was only in July 2023, after KuCoin was notified of a federal criminal investigation into its activities, that KuCoin adopted a KYC process for new customers. However, this KYC process applied only to new customers and not to KuCoin's millions of existing customers, including a significant number located in the U.S. KuCoin also never submitted any required suspicious activity reports, never registered with the CFTC as a futures commission merchant, and did not register with FinCEN as a money transmitter until at least the end of 2023.

Currently, KuCoin has responded: “KuCoin operates properly, and our users' assets are absolutely safe. We have noticed the related reports and are investigating the details through our lawyers. KuCoin respects the laws and regulations of all countries and strictly adheres to compliance standards.”

Net Outflow of $600 Million in 24 Hours

According to on-chain data from Nansen, there has been a net outflow of $649 million worth of tokens from the KuCoin platform over the past 7 days, with a net outflow of $641 million in the past 24 hours alone. At the same time, some large asset holders have begun withdrawing from KuCoin and transferring their assets to other trading platforms.

Currently, KuCoin still holds a considerable amount of cryptocurrency assets, totaling approximately $6.137 billion, including 1.36 billion USDT, 14,353 BTC (equivalent to about $1.01 billion), 107,732 ETH (equivalent to about $389 million), 18.57 million KCS (equivalent to about $231 million), and 955,752 SOL (equivalent to about $182 million), among others.

Kucoin Expelled by Regulatory Agencies in Multiple Locations

KuCoin, as an established exchange, was founded by GAN and TANG in September 2017 and launched its futures trading platform in July 2019. Since its inception, as its market share has grown, KuCoin has increasingly come under scrutiny from regulatory agencies worldwide.

As early as January 2022, due to regulatory issues, KuCoin began a phased withdrawal of its existing users in mainland China. In the same year, in June, the Ontario Securities Commission (OSC) in Canada took enforcement action against the cryptocurrency exchange KuCoin for failing to comply with Ontario's securities laws. Subsequently, due to allegations of non-cooperation with the OSC's investigation, KuCoin was permanently banned from participating in Ontario's capital markets. The OSC also imposed a fine of 2 million Canadian dollars (1.5 million US dollars) on KuCoin, along with investigative costs of nearly 100,000 Canadian dollars (77,000 US dollars).

Just two months later, KuCoin was again singled out by the South Korean government for conducting undeclared illegal business activities and was restricted from offering deposit and withdrawal services targeting South Korean users.

By March 2023, KuCoin received another subpoena from the New York State Attorney General, accused of offering unregistered securities and commodities and selling unregistered securities through its lending and staking product, KuCoin Earn. The court ordered KuCoin to cease operations in the state of New York.

Furthermore, the U.S. Department of Justice also accused KuCoin of offering products in New York that violate securities laws, such as the KuCoin Earn financial product. Subsequently, in December of the same year, KuCoin paid a settlement of 22 million US dollars and withdrew from the New York market to resolve the litigation crisis. Since then, KuCoin has once again lost its foothold in the New York market.