(Jail) time ahead for the cryptocurrency industry 

The cryptocurrency and digital asset industry has once again been the focus of the worldwide media. This time, it is not about the promises of an inclusive future of finance but is related to a couple of court cases initiated or found to have come to a close in the past months. 

These particular developments can be seen as a desire of regulators worldwide to set legal practice around the new class of digital assets (or cryptoassets as named in regulations worldwide) and send a message to the ever-growing base of consumers of such products that they will be protected while entering this new arena. A particular push is seen in the United States, where a couple of the world’s biggest cryptocurrency exchanges Binance and Kraken have been accused and charged with anti-money laundering activities. In both cases, regulators highlighted the lack of fully implemented Know-Your-Customer (KYC) procedures as a primary focus. In the case of the world’s number one cryptocurrency exchange Binance, the US Justice Department argued that the failure of KYC led to the money laundering and evasion of international sanctions. Cryptocurrency exchange Binance, and its CEO, Zhao Changpeng pleaded guilty to charges filed by the US Justice Department and US Securities and Exchange Commission (SEC) while agreeing to a record USD 4.2 billion fine in this case. In the most recent case, cryptocurrency exchange KuCoin has been hit with the same anti-money laundering charges and is facing a similar outcome. For Kraken, the SEC is asking for a total ban in the USA as they failed to register within the regulatory framework.

A couple of significant cases from the past have received their final acts in the past months. The cases of Celsius, Terra, and, most prominently, FTX exchange moved from the standstill, and in the case of FTX, the trial ended with the sentencing of the former FTX CEO Sam Bankman-Fried. The sentence was delivered in the court case related to the collapse of the FTX exchange and Alameda Research trading firm in November 2022. The former FTX CEO was sentenced to 25 years in prison six months after being convicted of fraud. In addition to the sentence, Bankman-Fried was ordered to pay USD 11 billion in reparations and damages to FTX users and investors. Another crypto-company CEO, Do Kwon was extradited from Montenegro to prosecutors in South Korea for the trial of the Terra cryptocurrency company. Kwon was hiding from law enforcement for a whole year to be finally arrested at the tarmac of the Podgorica airport in Montenegro. Kwon also faces a lengthy jail sentence if allegations from the indictment stand the trial case.

In another long-lasting legal battle before the US courts, a case against one of the biggest cryptocurrency companies, Ripple Labs, is nearing its end. The prosecutors look for another major fine of USD 2 billion. This would, according to their statement, send a message to the industry in relation to consumer protection. What exactly is that message?

‘Countries should take the issue seriously and strengthen regulation, as virtual assets tend to flow towards less regulated jurisdictions.’ This is pointed out in the Financial Action Task Force (FATF) president T. Raja Kumar’s interview, in which he acknowledged that only one-third of the world has implemented some form of cryptocurrency regulations. Mr Kumar urges countries to take the issue seriously and strengthen regulation.

That is definitely a trend for crypto companies. As a whole, the cryptocurrency industry has seen a significant drop in value received by illicit cryptocurrency addresses. The share of all crypto transaction volume associated with illicit activity has also decreased. This is stressed in the annual report by Chainalysis, which provides blockchain forensics for most governments worldwide. So, the industry is going in the right direction.