KuCoin to Pay Nearly $300 Million in Penalties After Guilty Plea

In a significant development, KuCoin’s operator, PEKEN Global Limited, has agreed to pay nearly $300 million in penalties after pleading guilty to operating an unlicensed money-transmitting business. The cryptocurrency exchange, one of the largest in the world, was charged by U.S. authorities for failing to comply with critical regulatory requirements, which allowed cybercriminals to use the platform for illicit activities such as money laundering.

This guilty plea follows an investigation by the U.S. Department of Justice (DoJ), which found that KuCoin had failed to implement necessary anti-money laundering (AML) policies. Specifically, the platform did not meet its obligations to establish a “know your customer” (KYC) system, which would have required the verification of user identities to prevent illegal transactions.

The U.S. Department of Justice’s Findings

The DoJ’s investigation revealed that KuCoin’s failure to implement a KYC system enabled cybercriminals to launder significant sums of money on the platform. By bypassing the required AML regulations, KuCoin provided a means for illegal actors to move proceeds from crimes, including darknet markets, malware, ransomware, and fraud schemes, without scrutiny.

Danielle R. Sassoon, the U.S. Attorney overseeing the case, condemned KuCoin’s actions, stating, “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.”

One of the most concerning aspects of the case was KuCoin’s attempt to deceive its customers about the KYC requirements. KuCoin allegedly misled users into believing that they were exempt from these regulatory obligations, despite these requirements being mandatory under U.S. law. This deception continued for several years, only to be rectified in August 2023, when KuCoin introduced a KYC system on the platform.

KuCoin’s Deception and the Impact on Customers

The deception regarding KYC was widespread, and it is believed to have persisted at least until July 2023. During this time, KuCoin’s customers were unaware of the legal requirements for identity verification, giving them a false sense of security regarding the platform’s compliance.

Interestingly, while the KYC system was added in August 2023, existing customers with funds already deposited on the platform were allowed to withdraw their balances without undergoing the verification process. This move highlights the company’s reluctance to fully comply with the regulations at the time.

As part of the settlement, KuCoin has agreed to pay a penalty of $297 million. This sum represents a combination of civil fines related to the unlicensed money-transmitting charges and compensation for the earnings KuCoin made in the U.S. between 2017 and 2024, which amounted to $184.5 million. Additionally, KuCoin has agreed to pay a criminal fine of $112.9 million, which is intended to penalize the company for its negligence in adhering to U.S. financial laws.

Penalties and Consequences for KuCoin

In addition to the significant financial penalties, the agreement will also require KuCoin to exit the U.S. market for the next two years. This will prevent the platform from operating in the country until at least 2026, signaling a major blow to its ability to serve one of the largest cryptocurrency markets globally.

Moreover, the founders of KuCoin, Chun Gan (also known as “Michael”) and Ke Tang (also known as “Eric”), will be removed from the company’s management and core operations team. This marks a significant shift in the company’s leadership and a clear message to other cryptocurrency exchanges about the importance of adhering to financial regulations.

KuCoin’s History in the U.S. Market

KuCoin has been active in the U.S. since 2017, providing its services to a large user base. The exchange has amassed approximately 1.5 million registered users in the country over the past seven years. Despite the charges, KuCoin has continued to grow as a global cryptocurrency exchange platform, but its failure to implement AML measures has now led to a major legal and financial setback.

The platform’s earnings from its U.S. operations between 2017 and 2024 were substantial, and estimates place them at $184.5 million. This figure, coupled with the criminal fine, contributed to the final penalty of $297 million, which will now serve as a means of settling the charges.

In addition to the financial penalties, Gan and Tang will also be required to forfeit $2.7 million, which they had personally received from KuCoin’s U.S. operations. This move aims to hold the platform’s executives accountable for the company’s failure to comply with U.S. laws.

The Ripple Effect on the Crypto Industry

This case serves as a cautionary tale for other cryptocurrency exchanges, particularly those operating in the U.S. market. Regulatory scrutiny of the cryptocurrency industry has increased in recent years, as law enforcement agencies work to curb the use of digital currencies for illicit activities.

The KuCoin case highlights the importance of compliance with AML and KYC regulations, which are critical to preventing money laundering and other criminal activities on cryptocurrency platforms. Exchanges that fail to implement these measures not only risk legal consequences but also undermine the legitimacy of the broader cryptocurrency industry.

The settlement of this case with a $297 million penalty underscores the serious nature of regulatory enforcement and the financial implications for companies that fail to comply with U.S. law. It is clear that as the cryptocurrency industry continues to grow, authorities will continue to hold exchanges accountable for their role in preventing criminal activity.

Conclusion

KuCoin’s guilty plea and the resulting $297 million settlement represent a significant moment in the cryptocurrency space, highlighting the crucial importance of regulatory compliance. For KuCoin, the penalty, leadership changes, and exit from the U.S. market will serve as a reminder of the cost of failing to uphold the law. This case will likely set a precedent for future regulatory actions against cryptocurrency exchanges that do not meet the required legal standards.