OFAC’s New Direction Raises Stakes For Crypto Industry | Wilson Sonsini Goodrich & Rosati

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The US Treasury Department’s Office of Foreign Assets Control (OFAC) released new guidelines for the virtual currency industry last week. While OFAC’s compliance obligations for economic sanctions apply to all persons in the United States, the new guidelines are designed to “help the virtual currency industry to mitigate” the risk that those sanctioned. exploit virtual currencies “to evade sanctions and undermine US foreign policy and national security interests.” “

The new directive comes after various US government agencies, including OFAC and the US Department of Justice (DOJ), initiated a series of enforcement actions against parties operating in the virtual currency business. These enforcement actions include the designation by OFAC of a virtual bureau de change as a national specifically designated for its role in facilitating ransomware transactions; criminal and civil charges against a cryptocurrency exchange for violating various anti-money laundering provisions of the Bank Secrecy Act and Commodity Futures Trading Commission regulations; and criminal charges for a cryptocurrency mixer who concealed the origin of the proceeds of crime. In addition, the DOJ also recently established a National Cryptocurrency Enforcement Team to investigate and prosecute cryptocurrency-related crimes. (See our related client review, National Cryptocurrency Enforcement Team Turns Up the Crypto Heat.) While these actions typically target larger cryptocurrency transactions, the latest OFAC guidance is an important signal that the U.S. government has l ‘intention to look more carefully, and to regulate more strictly, entities (and people) operating in the broader cryptocurrency space.

Although the new guide largely consolidates existing best practices, it also emphasizes several important points:

The advice is aimed at “the virtual currency industry, including tech companies, exchangers, administrators, miners, wallet providers and users.” OFAC emphasizes that it expects all of these industry players to implement a risk-based sanctions compliance program, which may include conducting sanctions risk assessments, implementing implementation of internal controls, performance of tests and audits, and training of the personnel concerned. Businesses need to filter customers and transactions. The guidelines emphasized the importance of Know Your Customer (KYC) filtering not only when onboarding new customers, but throughout the company’s relationship with them. In addition, the guidelines stressed the importance of monitoring transactions to “identify transactions involving virtual currency addresses or other identifying information … associated with sanctioned persons and entities on the SDN list or others. lists of sanctions, or located in sanctioned jurisdictions “. Filtering should include IP addresses and any other location or identity information received. OFAC reported a recent settlement agreement with a company that collected IP addresses for security purposes, but did not sort them against sanction lists, resulting in transactions by individuals in sanctioned jurisdictions. OFAC has also placed emphasis on the use of geolocation and IP blocking tools. The guidelines emphasize strict liability for sanction violations, meaning that civil sanctions can be imposed even if a business or person is unaware that they were engaging in a prohibited activity. This may be particularly relevant for technology companies whose products may be used by parties sanctioned because a service provider has not put sufficient controls in place.

In summary, any business involved in the virtual currency industry should assess their risk of sanctions and implement controls to prevent potential violations. As the OFAC notes in its new guidelines, parties who fail to take these measures risk incurring financial penalties, as well as damage to their reputation.

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