Kraken Facing Investigation for Violating US Sanctions

Cryptocurrency exchange Kraken is under a federal investigation in the United States for suspected violation of the country’s sanctions rule, according to The New York Times report.

Though officially not confirmed, the report cited five anonymous Kraken affiliates who revealed that the Treasury Department’s Office of Foreign Assets Control (OFAC) in investigating the exchange since 2019 and is expected to impose a monetary penalty.

The investigation is establishing whether the cryptocurrency exchange Cryptocurrency Exchange A cryptocurrency exchange is an online platform that supports the exchange of various currencies for a cryptocurrency or digital asset.Comparable to a generalized financial exchange, a crypto exchange’s core function is to permit and encourage the buying and selling of cryptos.This is accomplished by producing a stable trading environment suitable for traders nested through different locations around the world. Sometimes a crypto exchange may be referred to as a digital currency exchange (DCE) f A cryptocurrency exchange is an online platform that supports the exchange of various currencies for a cryptocurrency or digital asset.Comparable to a generalized financial exchange, a crypto exchange’s core function is to permit and encourage the buying and selling of cryptos.This is accomplished by producing a stable trading environment suitable for traders nested through different locations around the world. Sometimes a crypto exchange may be referred to as a digital currency exchange (DCE) f Read this Term is offering services in the countries sanctioned by the United States.

US Sanctions

Kraken, which is headquartered in California, specified in its terms of service that it is not offering services to any “entity or individual located, organized or resident in a sanctioned jurisdiction,” which are “Crimea, Donetsk, Cuba, Iran, Luhansk, North Korea and Syria.”

However, a spreadsheet shared by Kraken’s CEO, Jesse Powell on the company-wide Slack channel last month showed that the exchange has 1,522 users residing in Iran, 149 in Syria, and 83 in Cuba, alongside 2.5 million US users. Powell said that the list was prepared based on the resident information of 'verified accounts'.

Ironically, Powell was one of the loudest voices in the cryptocurrency industry seeking a ban on crypto exchange accounts of Russians after the initiation of the Russia-Ukraine war.

Kraken’s Chief Legal Officer, Marco Santori denied commenting on the “specific discussions with regulators,” saying “Kraken closely monitors compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term with sanctions laws and, as a general matter, reports to regulators even potential issues.”

Established in 2011, Kraken is the oldest and one of the largest cryptocurrency exchanges. Last year, it was slapped with a $1.25 million fine by the Commodity Futures Trading Commission for offering margined crypto derivatives products.

Meanwhile, the OFAC fined a few other cryptocurrency platforms in the past for violating sanctions. It fined wallet provider BitGo more than $98,000 in 2020 for 183 incidents of sanctions violation, while the crypto payment processor, BitPay was fined over $500,000 for 2,102 cases of violations.