KuCoin Under Fire: DOJ Accuses Exchange of AML Violations, Reserves Drop, CFTC Lawsuit Looms

KuCoin is facing a multi-pronged attack on its operations. The US Department of Justice (DOJ) has accused KuCoin of violating anti-money laundering (AML) laws.

In an announcement on Tuesday, the DOJ said KuCoin and two of its founders, Chinese nationals Chun Gan and Ke Tang, flouted U.S. anti-money laundering laws to Grow KuCoin into one of world’s largest cryptocurrency exchanges.

This comes on the heels of a similar settlement with New York last December for $22 million.

Now, the DOJ alleges that KuCoin failed to implement proper procedures to prevent suspicious activity and did not require users to complete adequate identification processes (KYC). This lack of compliance allegedly exposed the exchange to money laundering risks.

"Today, we exposed one of the largest global cryptocurrency exchanges for what our investigation has found it to truly be: an alleged multibillion-dollar criminal conspiracy. KuCoin grew to service over 30 million customers, despite its alleged failure to follow laws necessary to ensuring the security and stability of our world’s digital banking infrastructure," Homeland Security Investigations Acting Special Agent in Charge Darren McCormack said.

Gan and Tang are each charged with one count of conspiring to violate the Bank Secrecy Act and one count of conspiring to operate an unlicensed money transmitting business, each of which carries a maximum sentence of five years in prison. 

Reserves drop

The news prompted a significant drop in KuCoin's exchange reserves, likely due to user withdrawals in response to the AML charges, according to Unchained Crypto, citing data from CryptoQuant. The value of ERC-20 stablecoins in KuCoin's reserves has reportedly fallen by $273 million or 22%, to stand at $944 million several hours following the news.

In an update on X/Twitter, KuCoin said the exchange is "operating well" and that "the assets of our users are absolutely safe."

The DOJ's action against KuCoin is the first targeting a crypto exchange since its settlement with Binance last year. It remains to be seen how KuCoin will respond to these challenges and what impact they will have on the broader cryptocurrency market.

CFTC charge

Separately, the Commodity Futures Trading Commission (CFTC) filed a lawsuit against KuCoin, alleging that Ethereum (ETH) is a commodity and that KuCoin offered illegal, off-exchange margin trading of ETH to US residents.

“For too long, some offshore crypto exchanges have followed a now-familiar playbook by offering derivative products and falsely claiming people in the United States cannot use their platforms, when in reality, anyone in the U.S. with commonly used technology can trade without providing basic customer identifying information,” said Director of Enforcement Ian McGinley.