In the past 24 hours, the cryptocurrency exchange KuCoin saw $780 million leave its platform across various blockchain networks. This exodus of funds comes in the wake of the US Department of Justice (DOJ) charging KuCoin and two of its founders, Chun Gan and Ke Tang, with violating anti-money laundering laws.
The DOJ accused the exchange of operating unlawfully within the US and misleading investors about its operational jurisdictions. Despite the severity of these accusations, neither Gan nor Tang has been detained.
The charges suggest that KuCoin only initiated a Know Your Customer (KYC) program in 2023, which notably did not cover existing users. This delay in implementing safeguards has raised questions about the exchange’s commitment to regulatory compliance.
The DOJ charges KuCoin
According to the DOJ, KuCoin failed to register with the US Financial Crimes Enforcement Network as a money services business, a fundamental legal requirement.
This omission, along with the lack of anti-money laundering safeguards, has led to the exchange becoming, as per the DOJ’s claims, a haven for laundering money derived from various illicit activities.
The indictment said: “ [KuCoin] made itself available to be used, and in fact was used, as a vehicle for laundering the proceeds of suspicious and criminal activities, including proceeds from sanctions violations, darknet markets, and malware, ransomware, and fraud schemes.”
It also highlighted KuCoin’s alleged connections with Tornado Cash, a controversial crypto mixer sanctioned by authorities. The exchange is implicated in receiving over $3.2 million in cryptocurrency through Tornado Cash, linking it to wider criminal investigations involving the mixer’s developers.
Almost $800 million in outflows
Following these legal developments, KuCoin has seen a dramatic shift in its financial standing. Analytics firm Nansen reported a significant disparity between outflows and inflows on the exchange, with a net outflow reaching $783 million.
Despite these massive outflows, KuCoin’s overall crypto holdings remain substantial, valued at around $5.1 billion. Notably, KuCoin’s reserves include thousands of Bitcoins ($BTC) and a significant amount of Ether ($ETH), according to CryptoQuant.
More legal complications for KuCoin
Compounding KuCoin’s legal troubles, the Commodity Futures Trading Commission (CFTC) has also filed charges against the exchange. The CFTC’s lawsuit alleges that KuCoin operated without the necessary registrations for futures and swaps trading.
Like the DOJ, the CFTC criticises the exchange for its lack of a comprehensive KYC program. The regulatory body is seeking penalties, including trading and registration prohibitions, further intensifying the legal pressure on KuCoin.
In response to these developments, Homeland Security Investigations have labelled KuCoin as part of “an alleged multibillion-dollar criminal conspiracy”.
