A Crypto exchange re-domiciled to an unregulated country after being shut down in a regulated country.

Crypto exchanges KuCoin and BTSE have recently re-domiciled to unregulated jurisdictions, the Turks and Caicos Islands and Costa Rica, respectively, after being effectively shut down in the Seychelles.

This move follows the introduction of new legislation in Seychelles, which requires virtual asset service providers (VASPs) to obtain a license to operate legally.

This trend reflects a broader pattern in the crypto industry, where some exchanges relocate to jurisdictions with looser regulatory frameworks in response to tightening rules elsewhere.

Key Points:

• Seychelles Crackdown:
• The Seychelles government introduced a regulatory framework mandating that all VASPs be licensed.
• This aligns with global efforts to bring crypto exchanges under tighter regulatory oversight, especially in light of concerns around money laundering and investor protection.
• KuCoin's Legal Troubles:
• In March 2024, the U.S. Department of Justice (DOJ) filed criminal charges against KuCoin and its founders for allegedly operating an unlicensed money transmission business and failing to implement basic anti-money laundering (AML) policies.
• The DOJ claimed KuCoin received over $5 billion in suspicious and criminal funds and allowed U.S. users to access the platform despite restrictions.
• The Commodity Futures Trading Commission (CFTC) also filed a civil complaint, and the New York Attorney General previously settled with KuCoin for $22 million over similar violations.
• Strategic Re-domiciling:
• By moving to Turks and Caicos and Costa Rica, both KuCoin and BTSE appear to be seeking jurisdictions with minimal regulatory oversight, potentially to avoid the licensing and compliance burdens imposed by Seychelles and other more regulated environments.

The U.S. Department of Justice (DOJ)

• The U.S. Department of Justice (DOJ) has filed criminal charges against KuCoin and its founders, Chun Gan and Ke Tang, for serious violations of U.S. financial laws.

Here's a breakdown of the key allegations:

DOJ Allegations Against KuCoin

• Unlicensed Money Transmission: KuCoin operated as a money transmitting business without registering with the U.S. Department of the Treasury’s FinCEN or the Commodity Futures Trading Commission (CFTC) .
• Bank Secrecy Act Violations: The exchange failed to implement a basic Anti-Money Laundering (AML) program and did not verify customer identities through Know Your Customer (KYC) procedures. Until July 2023, KuCoin did not require any identifying information from users .
• Concealing U.S. Users: KuCoin allegedly deliberately concealed the presence of U.S. users on its platform to avoid regulatory scrutiny. It actively marketed itself as a platform where users could trade anonymously, even stating publicly that “KYC is not supported to USA users” .
• Suspicious Funds: According to the DOJ, KuCoin received over \$5 billion and sent over \$4 billion in suspicious and criminal funds, including proceeds from darknet markets, ransomware, and fraud schemes.
• Founders at Large: Both founders, Chinese nationals, remain at large as of the indictment's announcement in March 2024.

Legal Consequences

KuCoin and its founders face multiple counts, including:

• Conspiracy to violate the Bank Secrecy Act
• Operating an unlicensed money transmitting business

Each count carries a maximum sentence of five to ten years in prison.

References

•  Southern District of New York | Prominent Global Cryptocurrency ...https://www.justice.gov/usao-sdny/pr/prominent-global-cryptocurrency-exchange-kucoin-and-two-its-founders-criminally
•  US Justice Department charges KuCoin and two founders with violating ...https://cointelegraph.com/news/justice-department-charges-kucoin-money-laundering
•  Crypto exchanges KuCoin and BTSE re-domicile after being closed down in ...https://www.offshorealert.com/crypto-exchanges-kucoin-and-btse-re-domicile-after-being-closed-down-in-seychelles/
•  DOJ accuses crypto exchange KuCoin of money laundering violations and ...https://finance.yahoo.com/news/doj-accuses-crypto-exchange-kucoin-162712652.html