Get Ready for Crypto Sanctions Enforcement

Crypto industry, meet OFAC. Economic sanctions result from U.S. government policy decisions that certain countries, governments, individuals, or companies shouldn't be allowed to transact with "U.S. persons." The category of "U.S. persons" is expansive: it includes U.S. citizens and permanent residents anywhere in the world, non-U.S. nationals within the United States, and entities incorporated under U.S. law.

OFAC has broad authority to impose sanctions based on perceived threats to U.S. national security.

Some sanctions are nearly absolute, such as those prohibiting almost all transactions with countries like Iran, while other sanctions are nuanced, like those prohibiting certain transactions with Venezuela related to certain debt transactions.

OFAC advises companies involved in online commerce to "Develop a tailored, risk-based compliance program" including the use of sanctions list screening software.

While other U.S. federal agencies have been commenting on the rise of cryptocurrencies for years, OFAC long remained silent despite requests from crypto industry stakeholders for clarity on U.S. sanctions laws.

OFAC also issued FAQs noting that U.S. persons' sanctions obligations are the same "Regardless of whether a transaction is denominated in a digital currency or traditional fiat currency" and flagging that it may add cryptocurrency addresses to the sanctions list in the future.

In warning about the risks of cryptocurrencies, the advisory recommended specific compliance steps for crypto companies, including "Reviewing blockchain ledgers for activity that may originate or terminate in Iran," using software to "Monitor open blockchains," and screening customers against the sanctions list.

OFAC's recent actions illustrate the U.S. government's renewed focus on stopping authoritarian regimes-Venezuela, Iran, North Korea, and others-from using cryptocurrencies to evade U.S. sanctions.

Because OFAC doesn't require specific compliance efforts, companies aren't obligated to screen customers against the sanctions list or restrict user access in certain environments.

It will be no surprise when OFAC begins to bring enforcement actions in 2019 against those who transact in cryptocurrencies without respecting U.S. sanctions.