The Kraken platform under investigation in the United States

The New York Times reports that Kraken is being investigated for allowing users from sanctioned countries to sell and buy crypto.

Authorities are increasingly keen to prevent the use of cryptocurrencies to circumvent sanctions. This investigation started a few years ago, already in 2019 it was ongoing and it could result in a heavy fine for Kraken.

An ongoing investigation

Kraken is therefore, according to the New York Times, the subject of an investigation by the Office of Foreign Assets Control. It is a financial and law enforcement intelligence agency within the United States Department of Treasury.

The exchange would be accused of allowing users from sanctioned countries to be able to sell and buy cryptocurrencies. Thus, the Treasury Department seeks to know whether these facts are accurate or not. For now, neither the US government nor Kraken have confirmed the presence of this investigation.

The Kraken platform under investigation in the United States

However, it was since 2019 that it was launched when the New York Times cited at least 5 people affiliated with the company or close to the investigation. These people indicated in particular that Kraken could be fined again if the accusation were true.

Indeed, in the past, Kraken already had to pay a fine of $1.25 million when the CFTC filed a complaint (Commodity Futures Trading Commission) against the platform in 2021 for violating the law on the exchange of crypto- currencies.

The Treasury Department is currently investigating whether Kraken has facilitated obtaining assets for accounts located in Iran, Syria or even Cuba, countries sanctioned by the United States. The testimony of a former employee seems to confirm that Kraken would have generated revenue via users from these countries. A report indicates that more than 1500 users in Iran, 149 in Syria or 83 in Cuba could have taken advantage of the exchange platform.

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Close monitoring of cryptocurrencies

The US government, like many countries, is worried about the role of cryptocurrencies in circumventing the sanctions of certain countries. Indeed, several authorities have confirmed that the crypto industry is hindering the effects of these sanctions. There is therefore a need to increase surveillance of the sector.

So, just like the Treasury Department, several agencies have warned the exchanges not to offer services to sanctioned countries and also to Russia. If some platforms like Binance have cooperated by closing the accounts of senior Russian officials, for example, in recent months. Others were more hesitant to accept such a request. Including Kraken who declared in March 2022 that he would not ban unsanctioned users.

Already in February 2022, Jesse Powell, CEO of Kraken spoke on Twitter about the Ukrainian government’s request to sanction Russia following its attack on their country. This indicated that the platform could not make this decision without a legal request.

Finally, North Korea’s frequent hacks into the cryptocurrency industry have made governments more wary of the industry. Thus, in April 2022, the Treasury Department sanctioned 3 ETH addresses linked to North Korea.

The European Union follows suit

The United States is not alone in tightening its measures against the crypto industry. The European Union has also recently taken new measures to combat illegal activities. In particular money laundering, but also with the establishment of MiCa (Markets in Crypto-Assets). This institution aims to serve as the basis for the regulation of cryptos in the region.

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These measures have just been introduced. The platforms are therefore beginning to adapt to these in order to fully respect them. In order to be able to operate legally in the member countries of the European Union.

Kraken is not the only one that must completely respect the laws in force. Regulations for the crypto sector are still relatively unclear, but the tone has hardened in recent months. Mainly following various failures such as the fall of Terra, the bankruptcy of certain platforms. All this with the aim of making this industry better regulated in order to limit illegal activities, but also to protect users.

The Financial Stability Board (FSB) plans to propose a set of recommendations to the G20 as early as October 2022 and hopes for international regulations to come as soon as possible to have fair and identical control in as many countries as possible to balance this industry.

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