Buying a $250 Residency Card From a Tropical Island Let Me Bypass U.S. Crypto Laws
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The first envelope looked innocuous enough. A sticker on the white cardboard sleeve said it came from Hangzhou City in the east of China. Opening it up revealed something more ostentatious: a second blue envelope with a regal gold stamp.
“Welcome to the Metaverse on Earth!” the letter inside read. Attached was my new identity card for the Republic of Palau, a tropical island nation in Micronesia near Indonesia and the Philippines. I was now officially a “digital resident” of Palau, despite never stepping foot in the country. According to the website I bought the ID from, run by a company called RNS.ID, I could use it to check-in to rental accommodation and could extend a tourist visa for Palau by 180 days if I wished. Most importantly, I could use it as my identity document on cryptocurrency exchanges.
That is exactly what traders in the U.S. are doing in order to bypass restrictions on the amount of cryptocurrency they can withdraw and the exchanges they can use, according to interviews with users, a review of Discord messages and YouTube tutorials, and my own successful tests. Many exchanges don’t allow signups from the U.S. because of the country’s still strict regulations around cryptocurrency. But with a Palau ID, U.S. traders can skirt that issue, and claim they come from Palau. The ID is so ripe for abuse that major cryptocurrency exchanges such as Binance and Kraken have already banned use of the ID from their platforms.
“As Americans we do not have very many options to trade futures or certain alt coins, so exchanges allowing us to use a digital residency ID is pretty much a no brainer,” Ben, from the cryptocurrency-focused YouTube channel DeFi Rebels and who says he has used the ID, told me in an email. Ben only provided his first name.
Users of the Palau ID Discord as well as YouTubers both mention the Seychelles-based cryptocurrency exchange KuCoin as a place that accepts the ID. “If you’re on KuCoin right now in the U.S., you only have a withdrawal limit of $25,000,” one of those YouTubers, who goes by the name “Belief Bag,” said in a 2024 video. “But you may want the max withdrawal capabilities of a million a day.”
To test whether know-your-customer (KYC) regulations could be bypassed with the Palau ID, in which a service is supposed to check a user is who they say they are and their real location, I made an account on KuCoin. Initially, I used a VPN to connect from a U.S. IP address to see whether KuCoin served the U.S. market or not.
“Our services are currently unavailable in the U.S. To ensure a seamless experience, please access the platform from a non-restricted country/region using a supported IP address,” a pop-up on the site said.
I then changed my IP address to a random country, in this case Argentina, and created a KuCoin account as normal. I still needed to verify my account with an identity document in order to enable deposits, purchases, and trading, according to a second pop-up on the site.
I then selected Palau as the issuing country for my identity document, and KuCoin automatically selected “ID card” as the recommended type of ID. I uploaded a photo of my Palau ID, then looked into my webcam so KuCoin could check that my face matched that on the ID. A short while later, my account was verified and I was now able to trade cryptocurrency largely unrestricted.
To get the ID I signed up on the RNS.ID site, paid around $250, and the system performed a criminal and sanctions background check on the information provided. I received the card in the mail a few weeks later. The RNS.ID site describes the ID as a “government-issued identification card that can be used for any purpose that requires legal proof of identity.”
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The Palau digital residency program was launched in 2022, with longtime cryptocurrency investor Tim Draper becoming the program’s first resident. Ethereum creator Vitalik Buterin is also a Palau digital resident.
Surangel Whipps Jr., the President of Palau, appeared in multiple media outlets and on various podcasts when the program first launched. On the investor, cryptocurrency booster, and former CTO of Coinbase Balaji Srinivasan’s podcast in 2023, the president said that he had long believed Palau had to diversify its economy and not be dependent on tourism. “When I ran for president, one of the things I said is we have to develop our financial industry, and let’s find ways that we can do that.”
“America is successful because it’s the land of opportunity where you can dream the impossible. So we want to be that home for the digital world,” he added.
In that same podcast, RNS.ID’s CEO William Wang explained the motivation was to improve Palau’s economy in a way that didn’t follow the Singapore model of bringing millions of people to the country. He also pointed to other countries that have implemented similar digital residency programs, like Estonia. That program is not as explicitly pro-crypto as Palau’s. He also said that if someone appears on a sanction list, RNS.ID has the “option to say no.”
The digital residency program appears somewhat popular with cryptocurrency traders, with reams of cryptocurrency-focused YouTubers making guides on how to get the ID and the benefits. The RNS.ID Discord also includes people exchanging tips on what VPN to use in conjunction with the ID to better bypass KYC. Some say they want to use the ID to open a bank account, or explicitly ask what cryptocurrency exchanges the ID works on.
Often when someone in the Discord asks this question, an RNS.ID representative interjects and writes some variation of “we can’t provide specific guidance on where you can use your Palau ID for KYC, as each platform has its own policies.” Other users happily provide lists, though.
In an emailed statement, RNS.ID said “The Palau Digital Residency Program offers you an ID issued by the Republic of Palau. Your Palau ID can be used for KYC, however, it doesn't mean it can be used for every and all scenarios, given not all institutions take Palau ID. Even [if] they accept Palau ID, certain institutions may have various rules, for example, many banks requires you to disclose if you are a U.S. person. In such senario [sic], you should of course disclose to them.”
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Screenshots of YouTube videos indicating people can use the Palau ID to bypass U.S. cryptocurrency laws.
Multiple exchanges deliberately do not accept the Palau ID. “Kraken has an explicit control that rejects Palau Digital Residency Cards for KYC on the grounds that they can obscure an individual's true residency and may be available to nationals sanctioned by OFAC,” a Kraken spokesperson told me in an email, with OFAC referring to the U.S. Office of Foreign Assets Control which enforces sanctions. RNS.ID did not reply to a follow-up email I sent asking if a sanctioned entity has ever received a Palau ID.
“Additionally, Kraken continues to maintain strong KYC and fraud checks. We have measures in place to uncover and prevent fabricated identification documents being used in an attempt to circumvent our robust identity verification processes. We also reserve the right, as part of our terms of service, to suspend or close accounts where clients have used questionable or stolen identification documents during our KYC reviews,” the spokesperson added.
A spokesperson from Binance told me in an email that “Binance conducted its regular due diligence which resulted in our Risk and Compliance team deciding not to permit Palau ID for KYC on our platform."
“We require all users to complete a rigorous KYC process. We work hard to ensure safeguards are in place to prohibit US-based users from accessing our platform. These safeguards are monitored and enhanced regularly. Anyone caught circumventing these controls are violating our TOUs and are off-boarded,” the spokesperson added.
KuCoin did not respond to multiple requests for comment. In 2023, the New York Attorney General secured $22 million from KuCoin for operating illegally. It was also required to cease New York operations.
Ben from DeFi Rebels said he was concerned that more exchanges might not allow the Palau ID. “100% yes, we have seen most recently ByBit stop it,” he wrote. But “with a pro-crypto administration now in the U.S., we might see some more exchanges start allowing non KYC trading again.”
The Palau embassy in Washington DC did not respond to a request for comment.