CFTC sues KuCoin for illegally serving US customers

Rick Steves

“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.”

The Commodity Futures Trading Commission has filed a complaint against KuCoin, claiming multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations.

The civil enforcement action was filed in the U.S. District Court for the Southern District of New York and charges Mek Global Limited, PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited, which collectively operate a centralized digital asset exchange under the name KuCoin.

According to the CFTC, KuCoin allegedly:

  • illegally dealt in off-exchange commodity futures transactions and leveraged, margined, or financed retail commodity transactions;
  • solicited and accepted orders for commodity futures, swaps, and leveraged, margined, or financed retail commodity transactions without registering with the CFTC as a futures commission merchant (FCM);
  • failed to diligently supervise its FCM activities; operated a facility for the trading or processing of swaps without registering with the CFTC as a swap execution facility (SEF) or designated contract market (DCM);
  • and failed to implement an effective customer identification program (CIP).

“For too long, some offshore crypto exchanges have followed a now-familiar playbook”

The US regulator seeks disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations.

Director of Enforcement Ian McGinley, said: “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.”

“As made clear by the CFTC’s action today and its previous enforcement actions, the CFTC’s playbook should also now be familiar – the CFTC will charge such entities with failing to register with the CFTC and failing to comply with the agency’s rules that protect U.S. customers and prevent and detect terrorist financing and money laundering.”

KuCoin’s KYC procedures were a sham

The CFTC complaint alleges that KuCoin offered and executed commodity derivatives and leveraged, margined, or financed commodity transactions to and for people in the U.S. from approximately July 2019 to approximately June 2023, and failed to implement required know-your-customer (KYC) compliance procedures.

The complaint further alleges that although KuCoin claimed to have implemented KYC procedures, those procedures were a sham and did not prevent U.S. customers from trading commodity interests and derivatives on the platform.

The complaint also alleges people who identified themselves as being U.S. customers were permitted to trade commodity futures, swaps, and leveraged, margined, or financed commodity transactions on the exchange, in violation of the CEA and CFTC regulations.

KuCoin failed to impose any IP address restrictions during the relevant period to prevent U.S. customers from trading commodity interests or accounting for commonly used technology such as virtual private networks (VPNs) that could potentially circumvent IP address restrictions.

The U.S. Attorney’s Office for the Southern District of New York has also filed an indictment against the abovementioned entities that operate KuCoin – PhoenixFin PTE Ltd., Flashdot Limited, and Peken Global Limited. They are being charged with violating the Bank Secrecy Act, operating an unlicensed money transmitter business, and conspiracy to violate the Bank Secrecy Act and operate as an unlicensed money transmitter business.

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