The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) published new guidance last week for the virtual currency industry. While OFAC's economic sanctions compliance obligations apply to all U.S. persons, the new guidance is designed to "assist the virtual currency industry in mitigating" the risk that sanctioned persons will exploit virtual currencies "to evade sanctions and undermine U.S. foreign policy and national security interests."
This new guidance comes after various U.S. government agencies, including OFAC and the U.S. Department of Justice (DOJ), have brought a series of enforcement actions against parties operating in the virtual currency sector. These enforcement actions include OFAC's designation of a virtual currency exchange as a Specially Designated National 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 criminal proceeds. Further, the DOJ also has recently established a National Cryptocurrency Enforcement Team to investigate and prosecute crimes related to cryptocurrency. (See our related client advisory, National Cryptocurrency Enforcement Team Turns Up the Crypto Heat.) While these actions generally target larger cryptocurrency operations, OFAC's latest guidance is an important signal that the U.S. government intends to apply greater scrutiny to, and more strictly regulate, entities (and people) operating in the cryptocurrency space writ large.
While the new guidance largely consolidates existing best practices, it also emphasizes several important points:
In sum, any company involved in the virtual currency industry should assess its sanctions risk and implement controls to prevent potential violations. As OFAC notes in its new guidance, parties that do not take these steps risk incurring monetary penalties, as well as reputational harm.
For more insight into compliance with sanctions regulations, please contact Stephen Heifetz, Mike Casey, Josephine Aiello LeBeau, Jahna Hartwig, Anne Seymour, Jon Davey, or Troy Jenkins, or another member of Wilson Sonsini's national security team.