Regulation and the Evolving Crypto Market

On January 27, 2025, the fintech company KuCoin pled guilty to one count of operating an unlicensed money transmitting business, resulting in nearly $300 million in penalties and a two-year exit from the United States financial market.

The Seychelles-based entity began operating around September 2017. Since its inception, KuCoin was alleged to be a money transmitting business, which requires registration with FinCEN and an obligation to report suspicious transactions. Additionally, money transmitting businesses are required to implement adequate anti-money laundering (AML) and know-your-customer (KYC) programs, which help ensure that financial institutions are not utilized to further criminal activity or fraud.

Despite being one of the largest cryptocurrency exchanges in the world (at one point operating the seventh largest exchange by spot trading volume), KuCoin failed to implement either AML or KYC programs. In fact, employees of KuCoin publicly shared on social media sites that KYC was not mandatory for KuCoin. It was only in the summer of 2023, after being notified of a federal criminal investigation, that KuCoin implemented a KYC program. Additionally, KuCoin never registered with FinCEN and did not make any required suspicious activity reports.

As a result, the United States Commodity Futures Trading Commission (CFTC) filed criminal charges, alleging that the failure to implement proper KYC programs allowed KuCoin users to use the platform to transmit and launder billions of dollars of proceeds from places such as darknet markets, ransomware, and fraud schemes. Prosecutors asserted that the inadequate AML programs led to KuCoin receiving more than $5 billion and sending more than $4 billion in illicit proceeds between 2017 and 2024.

The January 27, 2025, guilty plea will result in multiple penalties, including a criminal forfeiture of $184.5 million and payment of a criminal fine of approximately $112.9 million. Additionally, KuCoin’s founders, Chun Gan and Ke Tang, have each agreed to forfeit approximately $2.7 million in funds received as a result of KuCoin’s operations in the United States. Gan and Tang, who have also been indicted, have agreed to no longer have any role in KuCoin.

This settlement is only the most recent for KuCoin, which has had an especially checkered regulatory past. Aside from a $22 million settlement in New York for violating the Martin Act and wrongfully calling itself an “exchange,” KuCoin has also been held accountable for various acts globally, including in Canada, the Netherlands, the United Kingdon, and India. Each of these actions had to do with failures to properly register or failure to implement AML and KYC programs.

The criminal charges against KuCoin and the resulting settlement are illustrative of the broader trend of the last half decade, which saw increased fintech regulation in the United States. That increased focus on cryptocurrency-related fintechs included a dispute between the CFTC and the SEC on whether cryptocurrencies are a commodity or a security. Commissioners at each agency argued cryptocurrencies were subject to their regulation. Each agency continued to claim jurisdiction through subsequent statements and enforcement actions. In a settlement with Coinflip, Inc. in 2015, the CFTC made its position clear when it declared “[b]itcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.” The definition of commodity found in 7 U.S.C. § 1(a)(9) discusses commodities such as corn and oil, but there is no rulemaking, real guidance, or even a detailed argument of any sort provided to the crypto industry.

However, recent changes under Donald Trump may dramatically alter how the United States approaches digital currency regulation, and Congress and the President may actually settle the debate with legislation, rulemaking, and guidance so the industry knows what laws and regulations apply and how to be compliant.

On January 23, 2025, Trump signed an executive order that created a “Presidential Working Group on Digital Asset Markets.” This task force would be responsible for reviewing existing crypto regulations and then, within 60 days, submitting to the Chair of the Working Group recommendations on whether each identified regulation, guidance document, order, or other item should be rescinded or modified, or adopted through a regulation.

Moreover, the executive order aimed to make it easier for crypto companies to open traditional bank accounts. This action is in response to claims that financial regulator policies were leading to “debanking” — a denial of banking services — within the crypto industry. In response, the U.S. House Oversight Committee opened an investigation, and the Senate Banking Committee held a hearing on February 5, 2025, to discuss debanking generally.

According to the executive order and Trump’s campaign trail promises, Trump envisions the United States becoming the Crypto Capitol of the world. However, some speculate that pro-crypto stances and the relaxing of regulations — all occurring before the passage of meaningful legislation — could create opportunities for crypto companies to engage in illicit behaviors similar to those of KuCoin.

Generally speaking, traditional financial institutions should keep a close eye on the White House and on the crypto market as a whole. Because of a lack of clear black letter law relating to crypto currency, White House policies, federal agency statements, enforcement actions, and potential legislation and rulemaking will provide the most guidance about how traditional financial institutions will be affected by the ever-changing crypto landscape.