Sanctions compliance considerations have always been an important factor for cryptocurrency companies, but a number of recent US government actions suggest regulators are increasingly focused on the intersection between digital currencies and economic sanctions. This intensified focus highlights the importance of sanctions compliance for blockchain-related companies, particularly for those considered US persons.
This increased focus has been building for a number of months. For example, in March of 2018, President Trump issued an Executive Order imposing certain sanctions on the Venezuelan government-issued digital currency known as the petro.
Last week, the US Department of Treasury’s Office of Foreign Assets Control (“OFAC”) took another step to ramp up sanctions against bad actors utilizing digital currency. OFAC designated two Iranian individuals who helped exchange bitcoin ransomware payments into Iranian rials on behalf of Iranians involved in the SamSam ransomware attack. In making those designations, OFAC listed specific digital currency wallet addresses associated with the designated individuals, marking the first time it has done so. According to Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker, “We are publishing digital currency addresses to identify illicit actors operating in the digital currency space. Treasury will aggressively pursue Iran and other rogue regimes attempting to exploit digital currencies and weaknesses in cyber and AML/CFT safeguards to further their nefarious objectives.”
Property and interests in property of designated persons must be blocked when within the United States or the possession or control of a US person and US persons are generally prohibited from dealing with blocked persons. OFAC explains that, “Like traditional identifiers, these digital currency addresses should assist those in the compliance and digital currency communities in identifying transactions and funds that must be blocked and investigating any connections to these addresses.”
OFAC also published two new FAQs regarding sanctions compliance and digital currencies. The FAQs clarify that institutions holding digital currency required to be blocked pursuant to OFAC regulations must take steps to deny access by blocked persons to those assets. OFAC notes that institutions may choose to block “each digital currency wallet associated with the digital currency addresses that OFAC has identified as being associated with blocked persons, or opt to use its own wallet to consolidate wallets that contain the blocked digital currency (similar to an omnibus account).” The FAQs state the relevant institution must retain an audit trail allowing the digital currency to be unblocked only when legally authorized and that blocked digital currencies do not need to be converted into fiat currency. As with all blocked property, a report must be made to OFAC within 10 business days. The FAQs also explain that institutions may tell customers their digital currency has been blocked pursuant to OFAC regulations.
Last week’s designations and FAQs demonstrate that OFAC is continuing to increase its interest in digital currencies and we anticipate that the agency will identify additional wallet addresses in the future. Financial institutions have long been a popular target for US regulators and law enforcement officials, as evidenced by last month’s $1.4 billion settlement with Société Générale. As blockchain-related financial institutions continue to grow it seems likely that some of the attention previously focused on traditional financial institutions will shift toward their digital counterparts.