krakenone of the largest cryptocurrency exchanges in the world, is under federal investigation on suspicion of violating US sanctions by allowing users in Iran and elsewhere to buy and sell digital tokens, according to five people affiliated with the company or familiar with the investigation.
The Treasury Department’s Office of Foreign Assets Control has been investigating Kraken since 2019 and is expected to issue a fine, said the people, who declined to be identified for fear of retaliation from the company. Kraken is reportedly the largest US crypto firm to face enforcement action from OFAC Sanctions on Iran, which the US imposed in 1979, prohibiting the export of goods or services to persons or entities. entities in the country.
The federal government has increasingly cracked down on crypto companies, which are loosely regulated, as the market for digital currencies has grown. Attacheda stablecoin company, was a fine by the Commodity Futures Trading Commission for misrepresenting its reservations last year, while the Department of Justice sued insider trading fee this month against a former employee of Coinbase, the largest US crypto exchange.
Kraken, a private company valued at $11 billion that allows users to buy, sell or hold various cryptocurrencies, has already been subject to regulatory action. Last year, the CFTC levied a $1.25 million fine against the company for a prohibited commercial service.
In an internal benefits conversation in 2019, Jesse Powell, chief executive of Kraken, suggested he would consider breaking the law in a wide range of situations if the benefits to the company outweighed the potential penalties. , according to messages seen by The New York Times. The company has also dealt with internal conflict over issues such as race and genderwhich were fueled 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 generally alerts regulators to even potential issues.”
A Treasury spokeswoman said the agency “does not confirm or comment on potential or ongoing investigations” and pledged to apply “sanctions that protect the national security of the United States.”
Sanctions are among the most powerful tools the United States has to influence the behavior of nations it does not consider allies. But cryptocurrencies pose a threat to sanctions because digital coins don’t pass through the traditional banking system, making funds harder for the government to control.
In October, the Treasury Department warned that cryptocurrencies “potentially reduce the effectiveness of US sanctions”. He published a 30-page compliance manual that recommended cryptocurrency companies use geolocation tools to weed out customers in restricted regions.
“The fact that crypto can move without a bank or middleman means that exchanges are responsible for certain kinds of financial regulatory compliance,” said Hailey Lennon, an attorney at Anderson Kill, who handles crypto regulatory issues. crypto.
Kraken and the sanctions issue surfaced in a November 2019 lawsuit filed by a former finance department employee, Nathan Peter Runyon, who accused the startup of generating revenue from accounts in countries under sanctions. He said he took the matter to Kraken’s chief financial officer and top compliance officer in early 2019, according to legal documents. (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 clients have also opened accounts in Syria and Cuba, two other countries under US sanctions, the sources said.
In 2020, OFAC fined BitGo, a digital wallet service with an office in Palo Alto, Calif., over $98,000 in 2020 for 183 apparent sanctions violations. Last year he 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 took no enforcement action.
Mr. Powell co-founded Kraken in 2011 and was an early proponent of Bitcoin, a digital currency that was marketed as free from government influence or regulation.
In 2019, Mr Powell argued on Slack about parental leave at Kraken, according to posts seen by The Times. Mr Powell said parental leave was a burden on the company because a child ‘could just as well be a second job, a distracting hobby or a harmful addiction’ and ‘is something outside of work that has a negative impact on work”.
The conversation quickly turned into a discussion about legal requirements. Mr Powell said that in his ‘formula for everything’ it was important to ask whether it was ‘worth the risk of not following the legal requirement’. He added: “Not following the law would by default be ‘ill-advised’, but it should always be considered as an option.”
Mr Powell did not respond to an email seeking comment.
This year, Mr. Powell was one of the loudest voices in the crypto industry, they resisted calls to shut down accounts in Russia after the invasion of Ukraine. The United States has imposed sanctions on some people and companies in Russia, but it hasn’t forced crypto companies to completely cut off access to the country.
Last month, Kraken appeared to still be running accounts in countries under sanctions, such as Iran, according to a spreadsheet Mr Powell posted to a company-wide Slack channel to show where the accounts were located. company customers. He said the data came from residency information listed on “verified accounts.”
The spreadsheet says Kraken had 1,522 users residing in Iran, 149 in Syria and 83 in Cuba, according to figures seen by The Times. The company also had over 2.5 million users residing in the United States and over 500,000 in Britain. The spreadsheet was quickly made unavailable to most employees.