Despite being based in Switzerland, the U.S. government filed 30 percent of all requests ShapeShift received last year.
Earlier this month, Kraken, another leading crypto exchange, released its transparency report. The firm revealed that more than 66 percent of the requests were filed by the U.S. government.
The company emphasized that only 20 percent of its user base is composed of investors based in the U.S. and the rest are based in Europe.
“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 said.
The overwhelming Know Your Customer (KYC) requests filed by the U.S. government is not exclusive to crypto. Other sectors including fintech have been pressured by the U.S. authorities to deal with a wide range of regulatory issues at a large magnitude.
Speaking to Bloomberg, Tribe Capital co-founder Arjun Sethi said that venture capital investors have started to focus on a firm’s ability to handle regulatory pressure because of the growing demand for data from the U.S. government.
When we meet with companies, in addition to speaking about the product, market and team, we also spend time on how they will execute within a regulatory environment. That means hiring the right type of people focused on compliance and best practices.
Crypto companies in the likes of Coinbase are said to have employed more than a dozen employees who are tasked to deal with regulators.
Regardless of whether a company is based in or outside the U.S., the U.S. authorities file KYC requests to cryptocurrency, fintech, or finance-related businesses at their will.
ShapeShift, for instance, is based in Switzerland, and a relatively large portion of the data requests it received in 2018 came from the U.S.
Even for a company like ShapeShift, which primarily handles cryptocurrency trades in a less strict and a more flexible environment in comparison to fully regulated exchanges, it is possible for authorities to ask for user data because the transactions on the platform are all transparent.
The firm explained:
They’re able to do this because in the interest of transparency, ShapeShift has always made all transactions through our system public – unlike any bank or traditional financial company. Upon the completion of any customer order, the transaction details are published on our website and via our APIs.
Relocating outside of the U.S. does not provide a safeguard for startups from dealing with the U.S. government. In the long-term, it is likely that compliance becomes a core discussion point for venture capital firms and potential angel investors due to the high costs involved in dealing with hundreds of requests on a yearly basis.
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Last modified: September 23, 2020 12:22 PM