Crypto exchange KuCoin laundered $9B, 'flouted' anti-money laundering laws: DOJ indictment

The Department of Justice lodged charges against crypto exchange KuCoin KCS -1.71% and two of its founders, alleging they violated anti-money laundering laws. 

The DOJ unveiled the indictment on Tuesday against KuCoin and two of its founders Chun Gan and Ke Tang over charges related to operating an unlicensed money-transmitting business and and violating the Bank Secrecy Act. The Department says the exchange failed to maintain an adequate anti-money laundering program and failed to have "reasonable procedures" in place to confirm customers' identities and also failed to file suspicious activity reports.

The indictment said that KuCoin deliberately avoided U.S. AML and KYC regulations by "falsely representing that it had no U.S. customers when, in truth, KuCoin had a substantial U.S. customer base." The government claims KuCoin allowed its platform to be used for laundering over $9 billion.

"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," said the U.S. Attorney for the Southern District of New York Damian Williams in a statement. "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."

The Commodity Futures Trading Commission also filed a parallel civil action on Tuesday against KuCoin, the DOJ said. 

KuCoin directed The Block to its posts on X. 

"#KuCoin is operating well, and the assets of our users are absolutely safe," the exchange said. "We are aware of the related reports  and are currently investigating the details through our lawyers. KuCoin respect the laws and regulations of various countries and strictly adheres to compliance standards."

In a post on X, KuCoin CEO Johnny Lyu said he was aware of the charges but that the exchange has not been affected.

"While we’re working on it, the platform is unaffected and operating normally as usual," Lyu said. "Your assets are safe and sound with us. Our team and I will provide timely updates about the progress."

The DOJ said the founders, Gan and Tang, remain at large. The charges against Gan and Tang — conspiring to violate the Bank Secrecy Act and conspiring to operate an unlicensed money-transmitting business — each carry a maximum sentence of five years in prison. 

Can't have it both ways 

Overall, KuCoin allegedly never filed required suspicious activity reports, did not register with the CFTC, and through the end of 2023 never registered as a money transmitting business, as required. The exchange's actions caused KuCoin to receive over $5 billion and send over $4 billion of "suspicious and criminal funds," the DOJ said.  

"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," Attorney General Williams said.

Until at least July 2023, KuCoin didn't require customers to provide identifying information. After July, when KuCoin was notified of its activities, then KuCoin adopted the KYC program for new customers, though that didn't apply to existing customers, the DOJ said. 

KuCoin is a large exchange with about 30 million customers in 207 countries and a daily spot trading volume of over $2.8 billion, according to the indictment.

This marks KuCoin's second run-in with the law. New York Attorney General Letitia James sued the exchange in March 2023 for violating the state's laws governing the trading of securities and commodities. 

The DOJ also accused Gan, Tang and the exchange of trying to hide the existence of its U.S. customers to make it appear as if KuCoin was exempt from U.S. AML and KYC requirements. At one point, KuCoin also lied to at least one investor about where its customers were located and said it had no U.S. customers, the government alleges. 

"Despite the fact that KuCoin gathered and tracked location information for its customers, KuCoin actively prevented its U.S. customers from identifying themselves as such when opening KuCoin accounts," the DOJ said. 

'A vehicle for money laundering'

Since KuCoin did not implement the necessary AML and Know Your Customer programs, the exchange opened itself up to money laundering, according to the indictment. 

For example, from August 2022 to November 2023, about 197 KuCoin deposit addresses indirectly or directly received $3.2 million worth of crypto from virtual currency mixer Tornado Cash, which has been placed on a sanctions list, the DOJ said. 

Also, from at least 2020 to 2022, the exchange was used to launder proceeds from a fraud scheme where millions of dollars were stolen from U.S. banks and other crypto exchanges. 

Tuesday's crackdown on KuCoin marks the second time U.S. prosecutors have charged crypto exchanges with failing to maintain a solid AML program. In November 2023, crypto exchange Binance pleaded guilty and agreed to pay $4 billion. The exchange's former CEO, Changpeng Zhao, is currently awaiting sentencing. 

CFTC charges 

KuCoin illegally operated a digital asset derivatives exchange, the CFTC said in its complaint filed on Tuesday. 

“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 the CFTC's Director of Enforcement Ian McGinley, in a statement. 

The CFTC said in its complaint that KuCoin did not have KYC procedures from July 2019 to June 2023, though the exchange claimed it did. 

About 20 to 50 percent of KuCoin's customers were based in the U.S., and thus within the agency's authority, requiring registration, but that did not happen, the CFTC said. 

"Although KuCoin purported to implement KYC procedures on or around November 1, 2018, those procedures were a sham and did not actually prevent U.S. customers from trading commodity interests and other derivatives on the platform. Instead, KuCoin’s KYC procedures were completely optional during the Relevant Period, and KuCoin encouraged U.S. customers to avoid them," the CFTC said in its complaint. 

The CFTC said KuCoin also marketed to U.S. investors, citing influencer campaigns and industry conferences, including Consensus 2022 and Mainnet 2022. 

The CFTC is seeking disgorgement, civil monetary penalties, permanent trading and registration bans as well as a permanent injunction against future violations. 

Update (March 26, 5:22 p.m. UTC): Added details throughout.