"The largest IPO in the history of the stock market is a Chinese company and it's a communist country," Cuban said in an interview with "Closing Bell."
Therefore, it's difficult to enforce insider trading laws, he said.
"If someone calls up someone at Alibaba and says 'OK, I'm this bigwig and oh by the way you can tell me what's going on with Alibaba or let me tell you about the new gulag we just built in southern China.' There's no choice. What are they going to say, 'No, I'm violating insider trading laws in the United States?' They're not going to."
Cuban, who was acquitted of insider trading charges in 2013, has been calling for reform of the Securities and Exchange Commission, which prosecutes such cases.
He also acknowledged being a hypocrite by owning Alibaba stock. The company went public on the NYSE earlier this year.
"They shouldn't be allowed based on what I know today, but if they're in, it's just one more stock to trade or invest in depending on your perspective," Cuban said.
That said, he believes the issue is more one of laws being applied equally, and not where the company is necessarily based.
"There's not a problem with having a company in a communist country come in but you just have to realize that our insider trading laws are going to be ineffective and apply them the same way to United States companies."