Kraken Faces Accusations of Selling Digital Tokens in Iran, Cuba, and Syria

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Centralized cryptocurrency exchange Kraken could face penalties from the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), under accusations the company allowed digital asset trading in sanctioned nations, including Iran.

The New York Times broke the story, citing “five people within the company or with knowledge of the inquiry.” Neither Kraken nor OFAC have publicly commented on the allegations raised in the report.

Investigation Dates Back to 2019 Whistleblower Lawsuit

According to the sources speaking with the newspaper, the original investigation dates back to 2019, when a former employee took Kraken to court. One of the most popular exchanges online, the former worker alleged the company was making money in countries currently sanctioned by the United States. OFAC opened their investigation in the same year, focusing on if Kraken was allowing users in those nations to open accounts. The sources claim that Kraken allowed users in Cuba, Iran, and Syria to use the exchange.

Complicating things are internal messages seen by the Times regarding Kraken’s attitude towards operations in the sanctioned nations. The newspaper reports internal messages traced back to company chief executive Jesse Powell suggests his company would “consider breaking the law in a wide range of situations if the advantages to the company outweighed potential penalties.”

In particular, the newspaper says the messages came through a Slack conversation. After a discussion about parental leave, Powell allegedly told employees: “Not following the law would by default be ‘ill-advised,’ but it always has to be considered as an option.”

Although Powell once called for the crypto industry to cut off Russia after the invasion of Ukraine, the company may still have active users in the nations in question. According to a spreadsheet seen by the Times, Kraken reportedly still has over 1,500 users in Iran, 149 in Syria, and 83 in Cuba.

Investigations Intensify as “Crypto Winter” Takes Hold of Industry

Looking into the practices of cryptocurrency exchanges is nothing new for OFAC because of the decentralized nature of digital tokens. Without a central authority regulating the movement of assets, it’s plausible for coins to move from the U.S. to sanctioned nations.

Two examples of OFAC bringing penalties against crypto companies violating sanctions can be found in the cases of BitGo and BitPay. Bitgo reached a settlement with OFAC in 2020 for “183 apparent violations of multiple sanctions programs,” paying the office $98,830. One year later, BitPay paid a $507,375 settlement to OFAC for “its potential civil liability for 2,102 apparent violations of multiple sanctions programs,” including allowing accounts to operate out of the Crimea region of Ukraine, North Korea, and Sudan.

If OFAC moves forward with an enforcement action against Kraken, it would be the company’s second fine in two years. In September 2021, the company was fined $1.25 million by the Commodity Futures Trading Commission (CFTC) on violations of the Commodity Exchange Act. The CFTC found that Kraken were offering margin trades outside of a designated contract market, while illegally operating as an unregistered futures commission merchant.

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