U.S. authorities are taking enforcement action against the operators of the KuCoin crypto platform for failing to block access to U.S. investors and guard against money laundering.

The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement action against the companies behind the KuCoin platform — Mek Global Ltd., PhoenixFin PTE Ltd., Flashdot Ltd. and Peken Global Ltd. — alleging they violated derivatives rules by engaging in unregistered trading and failing to register as a swap execution facility.

Among other things, the CFTC alleged that KuCoin allowed U.S. investors to trade on its platform, despite promises to implement know-your-client procedures that would screen out prospective U.S. customers.

“[T]hose procedures were a sham and did not prevent U.S. customers from trading commodity interests and derivatives on the platform,” the regulator alleged, adding that KuCoin failed to impose any IP address restrictions, or to combat the use of virtual private networks (VPNs) to access the platform.

“For too long, some offshore crypto exchanges have followed a now-familiar playbook by offering derivative products and falsely claiming people in the United States cannot use their platforms, when in reality, anyone in the U.S. with commonly used technology can trade without providing basic customer identifying information,” said Ian McGinley, director of enforcement at the CFTC, in a release.

“The CFTC’s playbook should also now be familiar — the CFTC will charge such entities with failing to register with the CFTC and failing to comply with the agency’s rules that protect U.S. customers and prevent and detect terrorist financing and money laundering,” McGinley added.

At the same time, the U.S. attorney’s office for the Southern District of New York (SDNY) also filed criminal charges against the firms and two of the platform’s founders, Chun Gan and Ke Tang, alleging they violated banking rules and operated an unlicensed money transmission business.

Gan, 34, and Tang, 39, were each charged with one count of conspiring to violate the Bank Secrecy Act and one count of conspiring to operate an unlicensed money transmitting business. Flashdot, Peken and PhoenixFin were also charged with violating the Bank Secrecy Act, along with conspiracy counts.

“As alleged, in failing to implement even basic anti-money laundering policies, the defendants allowed KuCoin to operate in the shadows of the financial markets and be used as a haven for illicit money laundering, with KuCoin receiving over US$5 billion and sending over US$4 billion of suspicious and criminal funds,” said U.S. attorney Damian Williams in a release.

Gan and Tang, who are both citizens of China, remain at large, the SDNY said.

None of the allegations have been proven, and they are presumed innocent.

In a post on social media, KuCoin said that its platform “is operating well, and the assets of our users are absolutely safe.”

“We are aware of the related reports and are currently investigating the details through our lawyers. KuCoin respect the laws and regulations of various countries and strictly adheres to compliance standards,” it added.

Back in 2022, the Ontario Securities Commission (OSC) sanctioned two of the firms behind the KuCoin platform — Mek Global and PhoenixFin — permanently banning them from trading and ordering a $2-million penalty, along with almost $100,000 in costs, for trading without registration.

According to the OSC’s list of unpaid sanctions, those penalties still haven’t been paid.