Get Ready for Crypto Sanctions Enforcement
Beau Barnes and Jake Chervinsky of Kobre & Kim LLP are litigants and government enforcement attorneys specializing in disputes and investigations related to digital assets. This article is not intended to provide legal advice.
Over the past year, the cryptocurrency industry has focused on deliberating on how the Securities and Exchange Commission enforces US securities laws. In the past two months, however, there has been a significant improvement in the new regulation, which is the application of US sanctions law by the Ministry of Finance's Office of Foreign Assets Office (OFAC).
Last week, OFAC imposed sanctions on cyber attacks against two Iranians in the US network. For the first time OFAC covered all of the bit coin addresses associated with individuals who committed a crime.
OFAC is issuing clear messages about the industry: comply with sanctions laws or pay prices.
Encryption industry meets OFAC
Economic sanctions result from US government policy decisions that must not deal with certain states, governments, individuals, or companies. People "are vast, including US citizens and permanent residents all over the world, non-US nationals in the United States, organizations established under US law, and overseas offices.
OFAC has broad powers to impose sanctions based on perceived threats to US national security. OFAC generally imposes "major sanctions" by prohibiting Americans from engaging directly or indirectly with sanctioned parties other than "secondary sanctions" based on transactions with unauthorized parties.
Some sanctions are imperative, such as prohibiting almost all transactions with countries like Iran. Other sanctions such as prohibiting certain transactions involving certain debt dealings with Venezuela are subtle. Violations of sanctions are punishable by civil or criminal offenses and may result in severe penalties.
OFAC Compliance and Enforcement
Unlike many regulatory agencies, OFAC does not impose formal compliance obligations. Instead, it oversees a strict liability system. Regardless of the time or resources the company has devoted to compliance, non-intentional breach of the sanctions may be punishable by law. In other words, those with strong compliance programs are more likely to convince OFAC to take a generous approach to potential violations.
OFAC publishes a variety of policy statements, FAQs, brochures, advice, and press releases to help companies build a sanctions compliance program. OFAC also provides compliance proposals for stakeholders in specific industries.
For example, OFAC recommends developing a custom risk-based compliance program, including the use of sanction list review software for online commerce-related companies. Similarly, OFAC recommends that a fund transferor block the IP address of the jurisdiction in which it is authorized, collects detailed customer identification information, and records the "purpose of payment" for all transactions.
To bridge the gap in the disclosure statement, OFAC enforces "enforcement guidelines" detailing the mitigations and deterioration factors considered when determining certain violations and appropriate fines.
For example, in 2015, OFAC announced PayPal payments of over $ 44,000 in transactions that violated a variety of sanctions programs. The agreement explained several misalignments, including that PayPal was looking for account holders on the sanctions list. PayPal had to pay over $ 7 million and emphasized the importance of compliance even for transactions with relatively low value for payment processors and senders.
OFAC on crypto
While other US federal agencies commented on the increase in cryptocurrencies over the years, OFAC kept silent for a long time, despite stakeholders in the cryptographic industry clearly demanding US sanctions. OFAC started to weigh in this year.
In March, OFAC ruled that the Venezuelan government initiated its own cryptanalysis (Petro), prohibiting Americans from trading with the property. OFAC has also issued a FAQ that states that Americans are subject to the same sanctions, regardless of whether the transactions are denominated in digital currency or traditional monetary units, and warned that they could add a cryptocurrency address to the sanctions list in the future.
In October, the US Treasury Department announced its advisory warnings on Iran 's efforts to support illegal activities abroad, while the US government decided to withdraw its nuclear deal and impose sanctions against Iran. The advisory explained the practice of the Iranian regime to circumvent financial regulation through transactions in precious metals, exchange bureau misuse, currency forgery and "virtual currency" transactions.
In the warning about the dangers of cryptocurrencies, the recommendation states that "Block chaining ledger reviews for activities that originate or terminate in Iran", "Block block chain monitoring" using software, and customer selection for sanction lists, We recommended specific steps for compliance.
Two Iranians who ransomware attacks on US companies last week, the OFAC's first action is directly related to ciphers. OFAC emphasized in the press release that it had first verified the person's bit coin address to help those who need to identify and investigate transactions and funds that should block people in the regulatory compliance and digital currency communities. All connections to these addresses. "
OFAC also issued an additional FAQ on the cryptographic firm's obligation to block approved people, and Deputy Treasury Secretary Sigal Mandelker said, "This department will aggressively pursue another bad regime to attack Iran and digital currencies."
Recent measures by OFAC demonstrate a new focus of the US government that prevents authoritarian regimes such as Venezuela, Iran, and North Korea from using Crypto-Calls to avoid US sanctions. The encryption industry is now caught in the midst of some intense geopolitical conflicts.
So what should a password company do?
First, consider compliance seriously. As OFAC points out, all compliance obligation is the same regardless of whether the transaction is a digital call or a currency call.
Second, understand the risks. Because OFAC does not require specific compliance efforts, the company has no obligation to screen customers for sanction lists or limit user access in certain circumstances. But companies need to know that they ignore the risk and ignore it.
Third, look forward to enforcement. OFAC, like many government agencies, provides guidance in part by promoting enforcement action. It is not surprising that OFAC begins to take enforcement action in 2019 for those trading in cryptocurrencies without respecting US sanctions.
Images of US dollars via Iran Rial and Shutterstock
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