Kraken subpoenaed three times as much from the US than other countries. Running a crypto-based financial service is clearly becoming more and more difficult in the United States. Costs such as answering subpoenas certainly factors into the start-up. What will this mean for future cryptocurrency startups in the US?
The US-based cryptocurrency exchange currently operates in the US, Canada, Europe, and Japan. They received 315 subpoenas from US law enforcement agencies, including the FBI, CIA, IRS, SEC, and other government bodies. How many subpoenas did they receive from other countries? 160.
“Peek at our Compliance team’s 2018 Transparency Report. You can see why many businesses choose to block US users. Cost of handling subpoenas (regardless of licenses) is quickly becoming a barrier to entry. Inquiries up 3x YoY.” – Kraken Exchange via Twitter
“US is about 1/5 of clients but 2/3 of requests. US agencies are much more active and are much less surgical. For many requests, we have no matches. It wouldn’t be surprising to find that the same subpoenas go out to everyone in the hopes that a match will be found.” – Kraken Exchange via Twitter
A Subpoena is an order issued to individuals and or companies for the production of documents or a request to appear in court for legal proceedings. Subpoenas are commonly used when law enforcement authorities investigate potential fraud.
Subpoenas are designed to help an investigation, however, they leave the recipient of the subpoena, such as financial institutions, with a higher volume of requests and shorter deadlines. Non-compliance of the subpoena can result in civil or criminal penalties, such as fines, jail time, or both. It’s a nightmare for compliance teams, for both financial institutions and crypto exchanges.
Kraken has an American base that currently amounts to 20% of all its customers. They’ve cited legal compliance costs as one of the major reasons why businesses choose to block US users. The exchange voiced concerns that investigators didn’t understand the number of efforts that generally go in complying with a subpoena, oftentimes requiring “petabytes of data.”
“Part of why these are so taxing is that they often require a significant amount of education and back-and-forth… We’ll get requests for ‘all transactions’, which could be petabytes of data when they actually only need the withdrawals from last week for one guy” Kraken said.
This isn’t the first time that Kraken has sounded off against compliance-related matters that are hindering their business. In April of last year, Jesse Powell, Kraken’s CEO, refused to respond to questions submitted by the New York Attorney General’s office regarding cryptocurrency exchanges. Kraken cited the short deadline as one reason – the other glaring reason was the fact that Kraken no longer operates in New York as another.
Do you think this legal compliance will make cryptocurrencies safer? Should cryptocurrency exchanges just comply? Will it lead to mass adoption? The Winklevoss Twins certainly think so. What about you? What do you think? Do you think more regulations will bring on better market conditions and have institutional money flooding in? Let us know on our Facebook Page!