Kraken hasn’t been cagey about revealing this news; they tweeted the totals on January 5. According to Kraken’s numbers, law enforcement requests numbered 39 in 2015, 71 in 2016, 160 in 2017, and 475 last year, as previously mentioned. A full 315 of the 2018 enquiries were from American agencies. 61 were from the United Kingdom, 34 from Germany, and no more than 20 came from other countries.
Law enforcement requests seek to find out who owes tax money for crypto purchases, among other things
To highlight the importance of this last point, Kraken said in a tweet that it’s easy to see “why many businesses choose to block US users.” They’re speaking of non-American exchanges like Bitfinex, which chose to no longer accept US-based users in 2018, as a direct result of law enforcement interference of this nature.
So what were these enquiries about? Kraken didn’t give specifics, but we can make educated guesses based on what we know about enquiries received by other exchanges. It’s likely that a fiat-to-crypto exchange like Kraken received enquiries about suspicious transactions related to criminal cases, and enquiries related to tax non-payment.
Illegal cryptocurrency transactions remain a concern for lawmakers around the world. Japanese law enforcement increased its activity against cryptocurrency crimes and crimes in which cryptocurrency is used in 2018. It’s likely that these are some of the enquiries Kraken is referring to. This makes sense, given the aggression shown by the American Securities and Exchange Commission against ICO and blockchain fraudsters last year.
It’s also likely that law enforcement was asking Kraken for user records related to taxes, as it has done for other American Bitcoin exchanges. For instance, the Coinbase exchange has been clear that, in years past, its user records have been subpoenaed by the Internal Revenue Service. Though not a law enforcement agency, the IRS may occasionally partner with law enforcement in the prosecution of specific cases.
Users will have many different responses to this news. While those who use crypto only for non-illicit purposes won’t have anything to fear from crime-related law enforcement enquiries, they may still worry about tax-related requests.
It’s for this reason that many crypto thinkers and influencers around the world have long been recommending decentralised exchanges. A DEX cannot be subpoenaed by law enforcement. Considered from a different perspective, perhaps greater law enforcement involvement is cleaning up the industry for better user adoption in the future. Whatever the case, it’s a good thing that exchanges like Kraken are transparent enough to keep users like us in the loop.