NEW YORK (NYTIMES) - Kraken, one 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, according to five people affiliated with the company or with knowledge of the inquiry.
The Treasury Department's Office of Foreign Assets Control (Ofac) has been investigating Kraken since 2019 and is expected to impose a fine, said the people.
Kraken would be the largest US crypto firm to face enforcement action from Ofac. Sanctions against Iran, which the United States imposed in 1979, prohibit the export of goods or services to people or entities in the country.
The US government has increasingly cracked down on crypto companies, which are lightly regulated, as the market for digital currencies has grown. Tether, a stablecoin company, was fined by the Commodity Futures Trading Commission (CFTC) for misstatements about its reserves last year, while the Justice Department brought insider trading charges this month against a former employee of Coinbase, the largest US crypto exchange.
Scrutiny of the industry has risen in recent months as the crypto market went into meltdown and several companies, such as Voyager Digital and Celsius Network, collapsed.
Kraken, a private company valued at US$11 billion (S$15.3 billion) that allows users to buy, sell or hold various cryptocurrencies, had previously faced regulatory actions. Last year, the CFTC levied a US$1.25 million penalty against the company for a prohibited trading service.
Sanctions are some of the most powerful tools the US has to influence the behaviour of nations it does not consider allies. But cryptocurrencies pose a threat to sanctions because the digital coins do not flow through the traditional banking system, making the funds harder for the government to control.
In October, the Treasury Department warned that cryptocurrencies "potentially reduce the efficacy of American sanctions". It released a 30-page compliance manual that recommended cryptocurrency companies use geolocation tools to weed out customers in restricted regions.
Ofac fined BitGo, a digital wallet service with an office, more than US$98,000 in 2020 for 183 apparent sanctions violations. Last year, it fined BitPay, a crypto payment processor, more than US$500,000 for 2,102 apparent violations. Coinbase disclosed in a 2021 financial filing that it had sent notices to Ofac flagging transactions that may have violated sanctions, though the agency has not taken any enforcement action.
As at last month, Kraken appeared to still be servicing accounts in countries under sanctions, such as Iran, according to a spreadsheet that its chief executive Jesse Powell posted to a companywide Slack channel to show where the company's customers were.
The spreadsheet said Kraken had 1,522 users with residences in Iran, 149 in Syria and 83 in Cuba, according to figures seen by The New York Times. The spreadsheet was soon made unavailable to most employees.