The court’s decision mandates Kraken to disclose account and transaction details of users who conducted transactions exceeding $20,000 within a calendar year. This includes personal information such as names, birthdates, taxpayer identification numbers, addresses, phone numbers, email addresses, and relevant documents.
The court petition was filed by the IRS in February after Kraken settled allegations of securities law violations related to its staking service with the U.S. Securities and Exchange Commission (SEC).
The IRS said it had previously issued a summons to Kraken in 2021. Still, the exchange failed to comply, leading to the agency’s investigation into the tax obligations of users who engaged in cryptocurrency transactions between 2016 and 2020.
As part of the court order, Kraken must also provide the IRS with blockchain addresses, transaction hashes, and potentially raw data. However, Judge Joseph Spero, who presided over the case, denied several of the IRS’s requests.
The judge rejected the agency’s demands for employment information, source of wealth, and information from anti-money laundering investigations, deeming them broader than necessary to identify Kraken account holders.
“The Court finds that to the extent the first three requests are aimed at establishing the identities of the Kraken account holders who fall within the Doe definition, the information sought in these requests is much broader than what is necessary to achieve that purpose for the vast majority of Doe users,” Judge Sepero wrote in his analysis of the agency’s request.
The IRS has clarified that its petition did not imply any wrongdoing on the part of Kraken in relation to its digital currency exchange business.
A federal court ordered crypto exchange Kraken to turn over account and transaction information to the IRS. Kraken must turn over information for users who transacted with more than $20,000 over the course of a calendar year for that year, including the user's name (and any…
— Wu Blockchain (@WuBlockchain) July 1, 2023
In a similar vein, the SEC has recently taken legal action against other exchanges and platforms. Last month, the commission filed lawsuits against Binance and Coinbase. The charges ranged from operating as an unregistered exchange to offering unregistered securities.
The former reached an agreement with the SEC last month to ensure that assets belonging to U.S. customers remain within the United States until the resolution of a comprehensive lawsuit filed by the regulatory agency earlier this month.
According to the court documents filed, the agreement is still subject to approval from the federal judge overseeing the litigation. The agreement restricts access to these assets exclusively to Binance.US employees to prevent U.S. customer assets from being moved offshore.
The agreement, while not resolving the lawsuit, outlines measures that Binance.US will undertake to ensure that no officials from Binance Holdings have access to private keys for the exchange’s various wallets, hardware wallets, or root access to Binance.US’s Amazon Web Services tools, as revealed in the court filings.
In response to the agreement, the SEC issued a statement on Saturday, asserting that the emergency relief order obtained for Binance.US customers would safeguard their assets and enable them to continue withdrawal.
Gurbir Grewal, director of the SEC’s enforcement division, emphasized the importance of these restrictions in protecting investor assets, saying that they were necessary due to Binance and its CEO’s control over customer assets, potentially allowing them to divert such assets.
In addition to the asset protection measures, the proposed agreement includes provisions for Binance.US to create new cryptocurrency wallets inaccessible to employees of the global exchange, provide further information to the SEC, and agree to an expedited discovery schedule, as said in the filings.