According to sources at Kraken, the crypto exchange is under investigation by the US Treasury for potentially violating sanctions in Iran.
The Treasury’s Office of Foreign Assets Control (OFAC) probe has been ongoing since 2019 with the imminent outcome expected to be a fine, New York Times (NYT) reports.
The news should come as no surprise. Earlier this month, a Reuters investigation revealed crypto exchange Binance had knowingly skirted US sanctions to serve Iran-based customers. Local retail investors revealed that while Binance was by far their exchange of choice, others were also available.
“There were some alternatives, but none of them were as good as Binance,” Tehran-based trader Asal Alizade told Reuters. “It didn’t need identity verification, so we all used it.”
What’s more, Kraken and its chief Jesse Powell have a track record of anti-sanction sentiment. In February, Ukraine’s minister of digital transformation asked crypto exchanges to block all Russia-based users via Twitter. Coinbase, Binance, and Kraken vehemently defended their reasons for not complying.
“If we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, step one would be to freeze all US accounts. As a practical matter, that’s not really a viable business option for us,” Powell said.
The CEO has come under fire for saying “Not following the law would by default be ‘ill-advised,’ but it always has to be considered as an option.” Former Kraken employees report an incredibly toxic work culture, spearheaded by Powell himself.
According to its website, Kraken currently offers its full array of services to Russia-based users. NYT reports that just last month, Powell posted a spreadsheet in a public Kraken Slack channel showing where its customers were located — it said 1,522 were in Iran, 149 in Syria, and 83 in Cuba.
According to Powell himself, the numbers came from location info listed on “verified accounts.” The spreadsheet was made private shortly after posting.
Investigations into Kraken skirting Iran sanctions began in 2019
The US Treasury’s investigation into Kraken began after an ex-employee sued the exchange’s parent company, Payward. Former financial analyst Nathan Runyon claimed he faced discrimination, harassment, and wrongful termination for repeatedly raising his concerns, chiefly among them embezzlement and that Kraken had broken sanctions against several countries.
Runyon sought damages and a trial by jury in a lawsuit filed in 2019. It also claimed he was fired because he discovered his boss was “defrauding Kraken employees” over their stock options. The suit was settled last year, but Kraken counter-sued and lost in 2020.
Since then, the OFAC has opened a probe into the sanctions evasion claim, which includes Cuba and Syria along with Iran. It’s hard to say how hefty the fines will be. NYT notes that OFAC has previously fined wallet provider BitGo $80,000 for sanctions violations and BitPay for more than $500,000.
In 2019, Iran allowed citizens to mine and own crypto, but banned it as a way to pay for goods and services.
- Iran heavily subsidizes its energy infrastructure, which made the country enticingly cost-efficient for Bitcoin miners.
- Last year, in a bid to dodge US sanctions, its central bank allowed financial institutions to pay for goods and services using cryptocurrency from licensed Iranian crypto miners.
- Due to sanctions, Iran’s no longer able to sustain Bitcoin mining – this month, power will be switched off for all miners in a bid to keep up with crippling energy demands.