The CEO of cryptocurrency exchange Kraken is under fire for admitting he used money laundering tactics to dodge mainstream financial platforms’ compliance crackdowns.
Tuesday saw the resurfacing of a 2019 Twitter conversation between laser-eyed BTC pumper Anthony Pompliano and Kraken CEO Jesse Powell, in which Powell confirmed that he engaged in dodgy financial structuring to bypass curbs imposed on Kraken’s activities by some major U.S. banks and online payment processor PayPal.
Pomp got the ball rolling by asking his followers to cite the worst experience they’d had dealing with a bank. Powell responded by saying “Paypal locked up all the money I had for 6 months, almost lost my business/apartment. [Bank of America] killed [Kraken’s] payroll account on 30 days notice. Chase killed it on 5 days notice, by mail, which arrived after the account was closed. Found out when employee checks bounced.”
Powell then added that “I cycled through multiple rented PayPal accounts and I started spreading deposits across several banks, cash in safety deposit boxes. Probably a compliance person’s worst nightmare but I basically had to employ the arts of a money launderer to survive.”
The exchange prompted the @Bitfinex’ed Twitter account to query PayPal’s customer service account if it was “totally cool to rent PayPal accounts to fraudulent Bitcoin exchanges or is that like a bad thing?”
Ironically, Kraken’s FAQ indicates that the exchange doesn’t accept deposits from or withdrawals to third-party payment processors such as PayPal because “it is difficult to verify that a transaction actually came from or is destined for an account associated with the client on Kraken.” In other words, do as we say, not as our CEO does.
Release the fraudken
The resurfaced Kraken shenanigans take on added significance following Monday’s Bloomberg report that the U.S. Department of Justice was investigating executives of the controversial Tether stablecoin for suspected bank fraud. The report claimed that the DoJ is probing activities from several years ago, when Tether execs allegedly concealed from banks that certain transactions were linked to digital currency.
In response, Tether issued a statement saying the company “routinely has open dialogue with law enforcement agencies” while slamming the Bloomberg report for “repackaging stale claims as ‘news.’” Notably, the blog post didn’t deny the accuracy of Bloomberg’s claims.
Kraken’s connections to Tether have occasionally raised eyebrows, particularly following a 2018 Bloomberg report on suspected ‘wash trading’ that identified “unusual patterns” in Kraken-based Tether trades that the report claimed were “ignoring the normal rules of economics.”
The following year, Kraken’s Powell attempted to refute the growing consensus that Tether’s money printer was pumping the price of the BTC token, but an academic paper published later that year concluded that Tether was largely responsible for artificially inflating the late-2017 BTC value bubble.
Kraken is one of the few exchanges on which rank-and-file traders can (theoretically) exchange USDT for USD, making Kraken a convenient means for Tether to dismiss complaints that USDT is a one-way dead-end street for crypto minnows.
Hate New York regulators, love New York markets
Kraken, a top-five exchange in terms of trading volume, has had an occasionally rocky relationship with certain government agencies, including unsuccessfully resisting efforts by the U.S. Internal Revenue Service to obtain data on individuals who’d conducted trades totalling over $20,000 to determine potential tax liabilities.
Befitting someone who got into digital currency thanks to his friendship with convicted felon Roger Ver, Powell once described New York state’s requirements for licensing digital currency exchanges as “so foul, so cruel that not even Kraken possesses the courage or strength to face its nasty, big, pointy teeth.” Powell also rejected a modest information request from New York’s Attorney General, while slamming operators who complied with these requests as engaging in “placative kowtowing.”
Yet Kraken continues to signal its intention to follow the lead of (fellow Tether thunder-buddy) Coinbase, which debuted on the Nasdaq exchange through a direct listing in April 2021. In March, Powell told Bloomberg TV that he could seek a Kraken listing next year, but only if the market values the company at well over $10 billion—and if Powell can somehow find a way to rebuild the regulatory bridges he burned during his anti-New York tantrums.
Dublin down
This past weekend, the Independent reported that Kraken had chosen to establish a new European base of operations in Ireland and was currently assembling a team in the Republic’s capital Dublin. The exchange is reportedly looking to fill a variety of executive positions, including (ahem) a compliance risk officer.
Kraken’s parent company Payward previously established a European base in London, but the U.K.’s financial watchdog has shown an interest in rattling crypto cages over the past couple months. For the moment, Payward remains on the Financial Conduct Authority’s Temporary Registration Regime for ‘cryptoasset’ firms, on which one could also find Binance’s local offshoot, until mid-May when Binance read the writing on the wall and withdrew its application.
The new Dublin base could be intended as a means of ensuring the company’s European Union presence should Boris Johnson’s government prove unable to restart post-Brexit negotiations over the U.K. finance industry’s continued access to EU markets.
Then again, it could also be a precautionary move in case the FCA finds fault with Kraken’s application or takes exception to Powell performing yet another anti-regulation rant. There’s also the outside chance that Powell will accidently disclose that he once shot a man in Reno just to watch him die. Hey, after his ‘rented PayPal accounts’ admission, we’re not ruling anything out.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups — from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple and Ethereum—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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