Preparing for Significant Regulatory Penalty Settlement: Insights from OKX's Strategy

Preparatory measures put in place to address potential news of regulatory breaches by one of the leading crypto exchanges, OKX, imply that the company may have been anticipating a resolution with U.S. authorities for some time.

This occurred on Monday when OKX announced a settlement of over $500 million with the U.S. Department of Justice following allegations of failing to obtain a money transmitter license and facilitating $5 billion in "suspicious transactions and criminal proceeds."

The intricate planning by OKX makes for intriguing reading. A confidential crisis management document viewed by CoinDesk mentions a messaging "SWAT Team" that can be rapidly activated to execute various communication strategies for the company's top executives via social media and interactions with journalists.

Prior to Monday's substantial fine and forfeiture, OKX had already formulated specific guidelines regarding settling with the DOJ, as well as the U.S. Treasury Department's Office of Foreign Assets Control (OFAC, or sanctions watchdog).

One preferred approach, as stated in the document, is to highlight that the broader crypto industry has been under intense scrutiny and that OKX is fully cooperating with regulators. This sentiment was reflected in Monday's press release, which stated that OKX "appreciates" the DOJ's "collaboration."

Since President Donald Trump's administration took office last month, regulatory agencies in the crypto sector have primarily focused on reversing their previously aggressive enforcement stance, with the SEC dropping ongoing litigation and closing investigations. However, OKX, like Kucoin with its recent $300 million penalty and Binance back in 2023, has been compelled to enter into costly settlements.

The guidelines also address what is expected from OKX founder Star Xu, President Hong Fang, and other executives when it comes to "their social media actions in two scenarios: 1) Leak before OFAC settlement, 2) upon OFAC settlement."

Regarding OFAC, if executives are questioned about whether OKX has served sanctioned markets, one suggested response is: "Customers from sanctioned markets slipped through when we had immature compliance controls and systems [...] It is a very small and insignificant part of the Okcoin or OKX customer base."

Indeed, Monday's press release from OKX acknowledged that U.S. customers were able to trade on the global exchange.

"The total number of U.S. customers involved – which are no longer on the platform – amounted to a small percentage of the Company’s worldwide customer population," the release said.

Brand awareness

Another key consideration for OKX is how the firm manages its high-profile sponsorship arrangements with entities such as Manchester City football club, F1 team McLaren, and the Tribeca Film Festival. The firm estimates that approximately $100 million per annum has been spent on these partnerships over the past three years.

The action plan for brand partners involves the OKX marketing chief contacting each partner via phone "at the last hour before the news breaks."

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The recommended strategy in this case is to emphasize that OKX has been preparing for a regulatory review due to the increased scrutiny on crypto firms. If asked why the exchange did not disclose information about this earlier, the document advises that these are pending inquiries and non-public matters. Additionally, there is a suggestion for the CMO and OKX’s head of legal to "review clauses in our brand partner contracts again."

Avoid mentioning OKB

Another aspect that receives attention in the OKX planning document is the exchange’s native cryptocurrency, OKB. A primary concern following the FTX incident is any indication that OKB has been used as collateral or to finance any operations of OKX, as was the case with FTX’s FTT token.

Although the OKB exchange token has not been subject to the same abuses as FTX’s exchange token, it did experience a sudden flash crash in January 2024. OKX quickly offered to compensate users who had been affected. The token, which has relatively thin trading volume and liquidity, saw 10 dormant wallets become active and begin trading just before the crash, according to Marina Khaustova, COO of Crystal Intelligence, a blockchain analytics firm.

Shortly after the OKB crash, OKX executives Tim Byun, the former CEO of OKcoin and head of global government relations, and Head of Product Wei Lan were dismissed by OKX. A source familiar with the situation said Byun was "sacrificed" following the OKB crash.

Unsurprisingly, the OKX communications protocol advises executives to "refrain from mentioning OKB and reference this only if asked."

Media management

Another aspect to consider is how the exchange should handle media inquiries. Should OKX receive emails or phone calls from journalists seeking comment on ongoing investigations, the SWAT Team and PR team should work together to "buy time by offering up leadership schedules"

Meanwhile, the plan is "to contact key friendly publications for a parallel story to cultivate a complimentary narrative to the originating story," the document states.

"1. Push for delay 2. Confirm friendly publications 3. Asynchronously queue up internal / external comms, so we hit send as the story comes out," it said.

OKX did not provide a comment by press time

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