The Department of the Treasury is reportedly investigating crypto exchange Kraken on suspicion that it permitted Iranian users to use the site's services in violation of federal sanctions.
According to reports, the Treasury Department is expected to enforce a fine against the exchange. Kraken Chief Legal Officer Marco Santori said in a statement that they will not comment "on specific discussions with regulators."
"Kraken has robust compliance measures in place and continues to grow its compliance team to match its business growth. Kraken closely monitors compliance with sanctions laws and, as a general matter, reports to regulators even potential issues," Santori added.
A recent Reuters investigation discovered that crypto exchange Binance continued to permit Iranian users to place trades in spite of the sanctions and a corporation ban on making business there.
Federal sanctions have long been an instrument for the U.S. government to stop individuals or countries from accessing the global financial system. Numerous crypto users and addresses in Iran have been slapped with sanctions in the past.
Various crypto platforms have proactively prevented Iranian users. NFT trading site OpenSea stopped Iranian users earlier this year, while Ethereum incubator ConsenSys blocked Iranian students from a coding boot camp in 2021.
The Treasury Department has also fined crypto companies in the past. BitGo, a crypto exchange, and BitPay, a transaction processor, have both received stiff Treasury fines for supposed sanctions violations.
Jesse Powell, Kraken's CEO and co-founder, has been very vocal about his readiness to challenge regulations he perceives as unfair, including international sanctions.
In February, after Russia’s invasion of Ukraine, Powell fought back against calls to freeze the accounts of Kraken's Russian users. He tweeted: "Our mission at [Kraken] is to bridge individual humans out of the legacy financial system and to bring them into the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad, indiscriminate wealth confiscation.”
In a corporate culture memo released in June, Kraken also pictured itself as a company that believes the "weaponization of the financial system is immoral" and vowed to "engage in disputes with government agencies where outdated laws are unfairly exclusionary." (Related: NY Times now covering Bitcoin frauds and Ponzi schemes as establishment assault on cryptocurrency goes ballistic)
Treasury advises cryptocurrency companies to use geolocation tools
The Treasury Department warned in October last year that cryptocurrencies "potentially reduce the efficacy of American sanctions." The department also issued a 30-page compliance manual that advises cryptocurrency companies to utilize geolocation tools to avoid serving customers in restricted regions.
"The fact that crypto can move without a bank or intermediary means that exchanges are responsible for certain types of financial regulatory compliance," said Hailey Lennon, a lawyer at Anderson Kill who advises clients on crypto-related regulatory matters.
The probe of Kraken comes as President Joe Biden's administration looks for ways to control cryptocurrencies. Regulators have put the crypto sector in a tense situation following the collapse of Celsius Network, Voyager Digital and Three Arrows Capital.
Early this month, the Department of Justice filed insider trading charges against a former staff of Coinbase, the biggest U.S.-based crypto exchange, and two other individuals. Coinbase is also facing a Securities and Exchange Commission investigation for improperly letting Americans trade digital assets that should have been registered as securities.
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