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Cryptocurrency exchange Kraken is reportedly under federal investigation for allegedly allowing users in Iran to trade digital assets in violation of US sanctions.
The exchange has been under investigation by the Treasury Department’s Office of Foreign Assets (OFAC) since 2019 and could face a penalty, the New York Times (NYT) reported on Tuesday, citing five sources familiar with the matter.
Sanctions against Iran have been a recurrent feature of US policy for over three decades. Former President Donald Trump reimposed sanctions in 2018 after withdrawing from the Iran nuclear deal, which he claimed failed to limit the country’s missile program. These sanctions meant US businesses with trade links in Iran would have to wind down operations.
Marco Santori, chief legal officer at Kraken, said the San Francisco-based crypto exchange doesn’t comment on specific discussions with regulators and is expanding 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,” he told Blockworks via email. The Treasury unit reportedly investigating Kraken didn’t return Blockworks’ request for comment by press time.
Separately, the US has imposed sanctions on certain Russian individuals over its war with Ukraine. But there is no legal requirement to restrict crypto companies from entirely banning access to accounts. Kraken CEO Jesse Powell said in March that total bans would be unfair to Russians, calling such a move a “pretty extreme measure.”
NYT reported that Kraken still serviced users in countries under sanctions, including Iran, as of June, citing a spreadsheet Powell posted to a company Slack channel.
Powell’s spreadsheet — which soon became inaccessible to many employees — showed Kraken had 1,522 users in Iran. The firm had 149 users in Syria and 83 in Cuba, both of which are also under US sanctions. The document reportedly showed over 2.5 million users in the US and over 500,000 in the UK.
Kraken not alone in facing allegations of servicing sanctioned countries
Growing scrutiny of cryptocurrency firms has been playing out as the blockchain industry goes through one of the most difficult periods in its short history.
Factors include an uncertain macroeconomic environment, diminishing risk appetite after the collapse of TerraUSD (UST) and the knock-on effects on crypto lenders like Celsius and Voyager. Going forward, industry commentators expect to see the crypto regulatory landscape accelerate.
Reuters reported earlier this month that Binance violated US sanctions by allowing Iran-based customers to trade on its platform. Chagri Poyraz, Binance’s global head of sanctions, said the company did block access to traders in Iran but users may have been able to bypass restrictions via Virtual Private Networks (VPNs).
Kraken, which was reportedly seeking a valuation over $10 billion earlier this year, has previously faced enforcement actions, although not for defying US sanctions. In September 2021, the Commodity Futures Trading Commission issued a $1.25 million penalty against the exchange over an alleged illegal offering.
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