Binance, Kraken, Accused of Violating US Sanctions, Back Anti-Fraud Startup

Binance and Kraken were accused of violating US sanctions on Iranian citizens and companies. The exchanges initially denied the allegations.

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The startup is based in Melbourne.

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Rival cryptocurrency exchanges Binance and Kraken — both once accused of violating US sanctions — are now backing a fraud detection and identity verification platform for digital assets. 

The venture capital arms of the exchanges joined a number of existing investors in the $23 million AUD ($15.2 million) Series A+ of Australia-based API platform FrankieOne. The so-called A+ round is designed to continue fundraising — often to hit an internal target —while remaining at a similar valuation.

The venture divisions, Kraken Ventures and Binance Labs, join previous FrankieOne backers Apex Capital, Reinventure and Tidal Ventures. AirTree Ventures and Greycroft co-led the round. The startup did not disclose its new valuation. But it came in at a post-money valuation of $36.9 million in October, 2021, Pitchbook data show.

The latest raise brings the platform’s total funding to date to $45 million AUD ($29 million), according to a statement Monday. New funding has been earmarked, predominantly, to scale operations across Asia Pacific and North America.

Both exchanges were previously accused of violating US sanctions, mainly by permitting customers in Iran to custody and trade cryptoassets on their respective platforms. And both companies initially denied the allegations. 

Kraken agreed to pay about $360,000 in a settlement with a division of the US Treasury on Monday after the financial regulator said the exchange was facing “potential civil liability” for “apparent violations” of broad sanctions the US had imposed on Iran.

Treasury officials said Kraken facilitated 826 transactions — totaling roughly $1.7 million — on the “behalf of individuals who appeared to be located in Iran” at the time.

Though it had appropriate controls in place to prevent unauthorized customers from opening an account, Kraken failed to implement IP address blocking across its platform, the department said. It is unclear whether attempts to block an IP address could be skirted by a VPN.

After this story was published, Kraken Chief Legal Officer Marco Santori said the exchange “voluntarily self-reported” and “swiftly corrected” the oversight.

“Even before entering into this resolution, Kraken had taken a series of steps to bolster our compliance measures,” Santori said in a statement. “This includes further strengthening control systems, expanding our compliance team and enhancing training and accountability.”

Binance, meanwhile, was accused of processing a much larger $8 billion over four years, beginning in 2018, by allowing a regular flow of transactions between itself and local Iranian exchange Nobitex, Reuters reported. Nobitex reportedly offered guidance on how users could circumvent US sanctions.

Representatives for Binance and Kraken did not immediately return requests for comment. 

“It’s incredibly difficult for companies to provide a world-class onboarding experience whilst mitigating fraud,” FrankieOne CEO Simon Costello said in the statement. “

The startup is in position to pull it off, though, according to Costello.

Frankie provides a single API to access identity and fraud prevention providers around the world by connecting banking, fintech, crypto and gaming companies to hundreds of data sources — across 48 markets.

The platform has grown considerably over the past 12 months, increasing its revenue four-fold, the company said. The startup has one of Australia’s “big four” banks, Westpac, as a customer, as well as Shopify and Afterpay, plus Pointsbet, a sports betting platform.

Updated Nov. 16, 11:19 am ET: Kraken agreed to an approximately $360,000 settlement with a division of the US Treasury on Monday for “potential” and “apparent violations” of US sanctions on Iran. Treasury officials said the exchange processed transactions on the “behalf of individuals who appeared to be located in Iran at the time.” Also, adds a statement from Kraken’s chief legal officer.


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