No Free Pass for Crypto When it Comes to US Sanctions Enforcement

US enforcement agencies continue to show a growing interest in the use of cryptocurrency to evade sanctions. The Office of Foreign Assets Exchange (OFAC) has blacklisted certain cryptocurrency exchanges (see Treasury Takes Robust Actions to Counter Ransomware | U.S. Department of the Treasury) in addition to obtaining a $500k settlement with a crypto processing company that accepted close to $130k in digital currency payments from sources in sanctioned countries such as North Korea and Iran (see Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and BitPay, Inc. | U.S. Department of the Treasury).

More recently, the Department of Justice received a favorable probable cause ruling from a federal magistrate judge allowing it to prosecute a certain unnamed individual for allegedly funneling over $10 million in bitcoin between the US and a certain unnamed sanctioned country (see 22mj00067CriminalOpinion.pdf (uscourts.gov)).

Apparently, the defendant in that case established a payments platform in a sanctioned country and then used a US-based entity as a front to support the platform’s operations. It also appears that the defendant advertised the platform’s services as a way to evade US sanctions by claiming that bitcoin helps conceal the money trail.

According to certain reports, this is the first criminal prosecution focused on the use of cryptocurrencies to evade sanctions. The magistrate judge confirmed in no uncertain terms that the use of virtual currency does not insulate one from the application of US sanctions; virtual currency is subject to OFAC’s sanctions regulations. This judicial affirmation follows guidance that OFAC itself issued last year that also confirmed that sanctions compliance applies equally to both virtual and fiat currency transactions (see Publication of Sanctions Compliance Guidance for the Virtual Currency Industry and Updated Frequently Asked Questions | U.S. Department of the Treasury).

Of course these are not earth-shattering determinations, but apparently they bear repeating given common misconceptions that somehow digital currencies/assets are both untraceable as well as untouchable from the reach of the law.

Daanish Hamid is a partner in Rimon’s Washington DC office with over 20 years’ experience. He advises clients on national security reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) and has led several successful CFIUS filings with respect to corporate deals. Mr. Hamid also handles compliance and investigations involving the Foreign Corrupt Practices Act (FCPA), anti-money laundering laws, economic sanctions, and fraud. His practice covers mergers and acquisitions, private equity/venture capital, joint ventures, technology licensing, commercial transactions, and general corporate matters as well.
Mr. Hamid works with emerging companies, private and publicly-listed multi-national businesses, PE/VC firms, and financial institutions. Several of his clients are involved with software, semiconductors, cybersecurity, artificial intelligence/big data, autonomous vehicles, robotics, e-commerce, financial services, fintech, education, biotechnology, defense/aerospace, renewable energy, healthcare, and international development.