US authorities have charged cryptocurrency exchanges again. This time, the target is KuCoin, one of the biggest exchanges on the market. KuCoin has 30 million customers globally and has been a popular trading platform since 2017.
The US Department of Justice accuses the exchange and its two founders (Chun Gan and Ke Tang) of deficient KYC/AML procedures. According to the charges, this has made it possible for US customers to trade on the platform.
Damian Williams, the lawyer representing the regulators, commented on the case as follows:
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.
US authorities have launched similar charges against other major crypto exchanges earlier. There could be half a dozen other big exchanges that are being targeted at the moment.
All major crypto exchanges had poor KYC processes between 2017 and 2021. Several exchanges have only recently introduced mandatory KYC due to tightening regulations.
In this respect, KuCoin is no different from other so-called offshore exchanges. In December of last year, the market leader Binance was fined as much as 4.3 billion dollars in a similar case.
The indictment has no impact on KuCoin’s day-to-day operations. However, such news always triggers a short-term panic when some users withdraw their funds.
The blockchain analytic firm Nansen reported yesterday that over $1 billion had been withdrawn from KuCoin.
An update on @kucoincom withdrawals
At the time of writing, over the past 24 hours, there has been an outflow of over $842m on Ethereum and $938m on EVM chains from an initial $6b base in holdings
This is more than a 15% drop in assets held by the exchange pic.twitter.com/Gy8gPMLROp
— Nansen 🧭 (@nansen_ai) March 27, 2024
KuCoin has handled withdrawals as it should, and there is no indication that the exchange has solvency issues. However, due to the high volume, some users had to wait longer than usual for withdrawals.
Numerous multibillion-dollar crypto bankruptcies occurred in 2022. Many remember this and react to any negative news by withdrawing their funds just to be on the safe side. However, it is important to understand the difference. The bankruptcies that took place in 2022 were primarily caused by either poor risk management or deliberate fraud towards customers and stakeholders.
The challenge we're facing is not unique to KuCoin but rather typical growth and regulatory issues encountered by emerging industries. Early-stage development often sees regulatory gaps, but as the industry matures, we move towards and embrace compliance and standardization.
— Johnny_KuCoin (@lyu_johnny) March 27, 2024
According to KuCoin CEO Johnny Lyu, the case is about typical growing pains in a new sector where regulation is still taking shape. Lyu also commented in other X posts that the KuCoin will continue to operate normally.
Such charges are typically settled with fines, and the founders may also be held personally liable. KuCoin’s operations will likely continue as normal. In December last year, KuCoin paid the New York State Attorney’s Office $22 million in fines.
You can find our KuCoin beginner’s guide here: KuCoin Review.