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Kraken’s order to give IRS user info could have been much worse: ‘It would expose clients’

  • Kraken must comply with a court order to hand over client information to the IRS.
  • But the crypto exchange says the IRS demanded much more, which the judge stopped.
  • “Were this information leaked by the IRS, it would expose Kraken clients to identity theft and other harm,” Kraken said.

Kraken says a ruling that the cryptocurrency exchange must hand over customers’ private information to the US Internal Revenue Service could’ve been much worse.

A court in California ruled that Kraken must hand over details including names, addresses, phone numbers and transactional ledgers for users with crypto trades worth $20,000 or more between 2016 and 2020.

But the court denied other IRS demands that asked for even more.

“They sought intrusive and unnecessary information about US clients, including IP addresses, employment information, sources of wealth, net worth, and banking details,” a Kraken spokesperson told DL News.

The court rejected those demands, calling them broader than necessary. “Were this information leaked by the IRS, it would expose Kraken clients to identity theft and other harm, which Kraken prevented,” the spokesperson said.

IRS’ long crypto battle

The IRS has for years been concerned that US citizens use crypto to repatriate their money and dodge taxes. It has extended to virtual assets an existing program for identifying US tax evaders who use electronic payments.

The IRS also founded a virtual asset team, which developed a set of tools to tackle the problem. One of these tools was to send so-called “John Doe” summons to crypto exchanges, seeking information on clients who perform high-value transactions on these platforms.

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The IRS sent such summonses to Coinbase in 2016, Circle’s Poloniex in 2021, and then Kraken, also in 2021.

Kraken pushed back on the summons, asking a federal court to intervene in what it described as an “unjustified treasure hunt.”

Crypto users across social media platforms Reddit and Twitter labelled the move as “mass surveillance” and worried it might be the start of a wave of similar audits across centralised exchanges.

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Others simply referred to the move as another step in a perceived campaign to clip the wings of the crypto industry.

Latest challenge for Kraken

The court order is the latest challenge for Kraken. At the end of 2022, it was swept up in the implosion of FTX in November.

Kraken blamed the market downturn as one of the reasons why it cut about 30% of its global workforce — about 1,100 people — at the end of 2022. That figure was almost equal to the number hired in 2021.

The exchange has also announced plans to shutter its Japan and Abu Dhabi operations.

In February, the exchange closed its US staking service and paid $30 million to settle an SEC enforcement action charging it with failing to register the offering as a securities exchange.

While some insiders were concerned, they understood that “there are always going to be instances of regulatory incursion, or investigation because crypto is no different from banking and any other industry,” Blair Halliday, Kraken’s UK managing director, recently told DL News.

“Firms such as Kraken are not necessarily the ones that people should be concerned about — we’re the ones that cooperate with regulators,” he said.

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