KuCoin, Execs Charged With Bank Secrecy Act and Unlicensed Money Transmission Offenses
KuCoin, along with two of its founders, Chun Gan and Ke Tang, allegedly violated U.S. anti-money laundering regulations in their efforts to expand KuCoin into one of the largest cryptocurrency exchanges globally.
Damian Williams, the U.S. Attorney for the Southern District of New York, and Darren McCormack, the Acting Special Agent in Charge of the New York Field Office of Homeland Security Investigations (HSI), have announced the unsealing of an indictment against KuCoin, a global cryptocurrency exchange, and two of its founders, Chun Gan (also known as "Michael") and Ke Tang (also known as "Eric").
The indictment accuses them of conspiring to operate an unlicensed money transmitting business and violating the Bank Secrecy Act by failing to maintain an adequate anti-money laundering (AML) program. Additionally, KuCoin is charged with operating an unlicensed money transmitting business and a substantive violation of the Bank Secrecy Act. Gan and Tang are currently at large.
U.S. Attorney Damian Williams said: “As today’s Indictment alleges, KuCoin and its founders deliberately sought to conceal the fact that substantial numbers of U.S. users were trading on KuCoin’s platform. Indeed, KuCoin allegedly took advantage of its sizeable U.S. customer base to become one of the world’s largest cryptocurrency derivatives and spot exchanges, with billions of dollars of daily trades and trillions of dollars of annual trade volume. But financial institutions like KuCoin that take advantage of the unique opportunities available in the United States must also comply with U.S. law to help identify and drive out crime and corrupt financing schemes. KuCoin allegedly deliberately chose not to do so. As alleged, in failing to implement even basic anti-money laundering policies, the defendants allowed KuCoin to operate in the shadows of the financial markets and be used as a haven for illicit money laundering, with KuCoin receiving over $5 billion and sending over $4 billion of suspicious and criminal funds. Crypto exchanges like KuCoin cannot have it both ways. Today’s Indictment should send a clear message to other crypto exchanges: if you plan to serve U.S. customers, you must follow U.S. law, plain and simple.”
Darren McCormack, the Acting Special Agent in Charge of HSI, described KuCoin as an alleged multibillion-dollar criminal conspiracy, highlighting its growth to serve over 30 million customers despite its failure to adhere to laws crucial for ensuring the security of the digital banking infrastructure. The indictment signals the end of the defendants' alleged pattern of evading these important laws. McCormack commended the efforts of HSI New York's El Dorado Task Force and other law enforcement partners for their dedication to the investigation.
According to the allegations outlined in the indictment and information provided on KuCoin's website, FLASHDOT LIMITED (formerly known as Phoenixfin Limited), PEKEN GLOBAL LIMITED, and PHOENIXFIN PRIVATE LIMITED collectively operate as the global cryptocurrency exchange KuCoin. KuCoin was founded in September 2017 by individuals including GAN and TANG.
KuCoin actively sought business from U.S. customers through its spot trading platform and later expanded to include a futures trading platform launched in July 2019. Since its establishment in 2017, KuCoin has grown into one of the largest global cryptocurrency exchange platforms, boasting over 30 million customers and handling billions of dollars in cryptocurrency trading volume daily. Public rankings on KuCoin's website position it among the top five cryptocurrency exchanges worldwide, with one ranking placing it as the fourth largest cryptocurrency derivatives exchange and fifth largest cryptocurrency spot exchange.
KuCoin, along with its founders GAN and TANG, actively targeted and served numerous customers in the United States, including those in the Southern District of New York.
Due to its operations and customer base, KuCoin has been classified as a money transmitting business and has been required to register with the U.S. Department of Treasury's FinCEN.
Since July 2019, it has also been categorized as a futures commission merchant and has been mandated to register with the U.S. Commodity and Futures Trading Commission (CFTC). As a money transmitting business and futures commission merchant, KuCoin is obligated to comply with relevant provisions of the Bank Secrecy Act, which include maintaining an adequate anti-money laundering (AML) program and implementing customer identity verification processes, known as know-your-customer (KYC) procedures. These AML and KYC programs are crucial for ensuring that financial institutions like KuCoin are not exploited for illicit activities such as money laundering.
Despite being aware of their obligations under U.S. anti-money laundering (AML) laws, GAN, TANG, and KuCoin knowingly chose to disregard these requirements. For instance, KuCoin failed to establish a sufficient know-your-customer (KYC) program, allowing customers to open accounts without providing any identifying information until at least July 2023. Even after implementing a KYC program for new customers in July 2023, existing customers, including a significant number from the United States, were not subject to these verification measures. Additionally, KuCoin neglected to file any suspicious activity reports, failed to register with the U.S. Commodity and Futures Trading Commission (CFTC) as a futures commission merchant, and did not register with the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN) as a money transmitting business until at least the end of 2023.
Moreover, GAN, TANG, and KuCoin actively concealed the presence of U.S. customers to evade U.S. AML and KYC requirements. Despite collecting location data from customers, KuCoin prevented U.S. customers from identifying themselves as such during the account opening process. Additionally, KuCoin misrepresented its customer base to investors, falsely claiming in 2022 that it had no U.S. customers when, in reality, it had a substantial U.S. customer base. Furthermore, KuCoin promoted itself to U.S. customers as an exchange where they could trade without undergoing KYC procedures, emphasizing its no-KYC policy as a selling point.
As a result of KuCoin's deliberate failure to implement adequate AML and KYC programs, the platform facilitated the laundering of significant sums of criminal proceeds, including funds from darknet markets, malware, ransomware, and fraud schemes. KuCoin's lax KYC policy played a pivotal role in its growth and success, attracting customers seeking anonymity in their transactions.
GAN, aged 34, and TANG, aged 39, both citizens of China, face charges including conspiring to violate the Bank Secrecy Act and conspiring to operate an unlicensed money transmitting business, each carrying a maximum sentence of five years in prison.
FLASHDOT LIMITED, registered in the Cayman Islands; PEKEN GLOBAL LIMITED, registered in the Republic of Seychelles; and PHOENIXFIN PRIVATE LIMITED, registered in Singapore, collectively known as "KuCoin," face charges including conspiring to violate the Bank Secrecy Act, operating an unlicensed money transmitting business, and violating the Bank Secrecy Act, each with varying maximum sentences ranging from five to ten years in prison.
The sentencing for any convictions will be determined by the judge, and the maximum potential sentences mentioned are provided for informational purposes only.
The investigative efforts of HSI New York's El Dorado Task Force were commended by U.S. Attorney Mr. Williams, who also acknowledged the Commodity Futures Trading Commission's parallel civil action against KuCoin.
The Illicit Finance & Money Laundering Unit of the U.S. Attorney's Office is handling the case, with Assistant U.S. Attorneys Emily Deininger and David R. Felton leading the prosecution.
It's important to note that the charges outlined in the Indictment are allegations, and the defendants are presumed innocent unless proven guilty in a court of law.
