KuCoin Pleads Guilty to Unlicensed Money Transfer Operation, Faces $300M Penalty

Seychelles-based crypto exchange – KuCoin – has pleaded guilty to conducting an unlicensed money-transmitting business. As per the agreement, KuCoin faces monetary penalties of more than $297 million, which includes a forfeiture of $184.5 million and a fine of $112.9 million.

KuCoin will also be suspending its US market activities for two years. Founders Michael Gan and Eric Tang will relinquish $2.7 million and withdraw entirely from the company’s leadership under the terms of a deferred prosecution deal.

KuCoin’s AML and KYC Lapses

Court documents reveal that KuCoin was established around September 2017 and has grown into one of the largest cryptocurrency exchanges globally, serving over 30 million customers with billions in daily trading volume. From its inception until March 2024, KuCoin served about 1.5 million U.S. users and earned at least $184.5 million in fees from them.

As a money transmitter, KuCoin was required to follow the Bank Secrecy Act, which requires maintaining a sufficient anti-money laundering (AML) program and performing know-your-customer (KYC) verifications.

Despite its obligations and significant US presence, the Department of Justice said that KuCoin failed to establish an adequate KYC program. Until July 2023, the platform did not require users to provide identifying information, and KuCoin employees publicly stated on social media that KYC was optional, even responding to posts from US-based customers.

In August 2023, KuCoin introduced mandatory KYC for new customers and existing users who wanted to use its services actively. However, the platform did not enforce these requirements on existing users who only sought to withdraw or close positions, which was a compliance requirement.

Additionally, the Department of Justice added that KuCoin failed to register with FinCEN as a money-transmitting business and did not submit any mandatory suspicious activity reports.

Commenting on the development, the US 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.”

KuCoin’s Statement

Despite regulatory challenges in the US, KuCoin assured that its operations in other non-restrictive markets remain unaffected.

Meanwhile, in a statement to CryptoPotato, Gan described the settlement as “a favorable outcome” and announced that KuCoin’s chief legal officer, BC Wong, will assume the role of CEO.

He also mentioned that the Justice Department dropped all charges against himself and Tang after meeting certain conditions and stated that the latest resolution brings clarity to the crypto exchange.