Krakenone of the world’s largest cryptocurrency exchanges, is under federal investigation, suspected of violating US sanctions by allowing users in Iran and elsewhere to buy and sell digital tokens. digitally, according to 5 people involved with the company or with knowledge of the investigation.
The Treasury Department’s Office of Foreign Assets Control has been investigating Kraken since 2019 and is expected to impose a fine, the people, who spoke on condition of anonymity, said for fear of retribution by the company. Kraken will be the largest US crypto company to face enforcement action from OFAC Sanctions on Iran, which the US imposed in 1979, bans the export of goods or services to people or entities in the country.
The federal government is increasingly cracking down on lightly regulated crypto companies, as the digital currency market grows. Tethera stablecoin company, is fined by the Commodity Futures Trading Commission for its reserve flaws last year, while the Justice Department issued insider trading fees This month against a former employee of Coinbase, the largest cryptocurrency exchange in the United States.
Industry scrutiny has increased in recent months as the crypto market went into crisis and some companies, such as Voyager Digital and Celsius networkfall.
Kraken, an $11 billion privately held company that allows users to buy, sell or hold various cryptocurrencies, has previously faced legal action. Last year, the CFTC taxed fine of 1.25 million dollars against the company for a prohibited business service.
During an internal conversation about employee benefits in 2019, Jesse Powell, Kraken’s chief executive, suggested that he would consider breaking the law in a range of situations if the public interest company over potential penalties, according to an announcement by The New York Times. The company has also dealt with internal conflicts on issues including race and genderwas sparked by Mr. Powell.
Marco Santori, Kraken’s chief legal officer, said the company “does not comment on specific discussions with regulators”. He added, “Kraken closely monitors compliance with sanctions laws and, as a general matter, reports to regulators even potential problems.”
A Treasury Department spokesman said the agency “does not endorse or comment on potential or ongoing investigations” and is committed to enforcing “sanctions aimed at protecting national security.” of the United States”.
Sanctions are one of the most powerful tools the United States has to influence the behavior of countries it does not consider allies. But cryptocurrencies are at risk of punishment because digital currencies do not flow through the traditional banking system, making it harder for governments to control the money.
In October, the Treasury Department warning that cryptocurrency “has the potential to reduce the effectiveness of US sanctions.” It released a compliant 30 pages handmade that crypto companies are proposed to use geolocation tools to weed out customers in restricted areas.
“The fact that cryptocurrencies can move without banks or intermediaries means that exchanges are responsible for some kind of financial regulatory compliance,” said Hailey Lennon, attorney at Anderson Kill. , who handles regulatory matters in cryptocurrencies, said.
Kraken and the sanctions issue came about in a November 2019 lawsuit filed by a former employee of the finance department, Nathan Peter Runyon, who accused the startup of generating revenue from accounts in financial institutions. country is being punished. He said he took the matter to Kraken’s chief financial officer and top compliance official in early 2019, according to regulatory filings. (The lawsuit was settled last year.)
That same year, OFAC began investigating Kraken, focusing on the company’s accounts in Iran, people familiar with the investigation said. Kraken’s customers have also opened accounts in Syria and Cuba, two other countries under US sanctions.
In 2020, OFAC is fined BitGo, a digital wallet service with offices in Palo Alto, California, over $98,000 in 2020 for 183 apparent sanctions violations. Last year, it was fined BitPay, an Atlanta-based crypto payment processor, over $500,000 for 2,102 apparent breaches. Coinbase also revealed in a 2021 financial filing that it sent notices to OFAC flagging transactions that may have violated sanctions, although the agency has not yet taken any enforcement action.
Mr. Powell co-founded Kraken in 2011 and is an early proponent of Bitcoin, a digital currency marketed as free from any government influence or regulation.
In 2019, Mr. Powell had an argument on Slack over parental leave at Kraken, according to messages viewed by The Times. Mr. Powell said parental leave is a burden for the company because a child “can also be a second job, a distracting hobby or a harmful addiction” and “is a something other than work has a negative impact on work.”
The conversation quickly turned to a discussion of legal requirements. Mr. Powell said that in his “recipe for everything” it was important to consider whether it was “worth the risk of disobeying the legal requirement.” He added, “Not following the default rule would be ‘not advised’, but it should always be considered an option.”
Mr. Powell did not respond to an email requesting comment.
This year, Mr. Powell is one of the loudest voice in the crypto industry against calls to close accounts in Russia after it invaded Ukraine. The United States has imposed sanctions on a number of individuals and businesses in Russia, but it does not require crypto companies to completely cut off access to the country.
Last month, Kraken appeared to still be servicing accounts in sanctioned countries, such as Iran, according to a spreadsheet Mr. Powell posted to a company-wide Slack channel showing the company’s customers. where are you. He said the data came from residency information listed on “verified accounts”.
The spreadsheet says Kraken has 1,522 users residing in Iran, 149 in Syria and 83 in Cuba, according to figures given by The Times. The company also has more than 2.5 million users residing in the US and more than 500,000 in the UK. Spreadsheets were soon made available to most employees.
