US-OFAC statement: Sanctions also apply to cryptocurrency

Bitcoins, Ether, Neo… These are just a few examples of the cryptocurrencies that may become subject to US sanctions. Sanctions which may be avoided by implementing a tailored compliance programme.

On 19 March 2018, as a part of the US Office of Foreign Assets Control's (OFAC) combat against crime, certain guidelines with respect to cryptocurrency were included in OFAC's Q&A on sanctions compliance.

The SDN list

OFAC emphasises that the current sanctions in force against named persons and entities also apply to cryptocurrency transactions. Persons subject to the sanctions are those listed on OFAC's Specially Designated Nationals and Blocked Persons List – the “SDN list”.

This means American jurisdiction cannot be avoided simply by trading in or with cryptocurrency as an alternative to legal tender such as US dollars. In some circumstances, to do so might even qualify separately as punishable evasion.

OFAC points to the possibility of publishing cryptocurrency wallet addresses along with the names of persons listed on the SDN list. Cryptocurrency addresses would in such case be included on the SDN list with a "digital currency address" featuring a unique code composed of letters, digits, and the name or ticker of the cryptocurrency (e.g. Bitcoin (BTC), Ether (ETH), Litecoin (LTC), NEO, Dash (DASH), Ripple (XRP), Iota (MIOTA), Monero (XMR), or Petro (PTR)).

It may be difficult to update the SDN list in the same speed as new cryptocurrencies are "mined" or new types of cryptocurrencies are established. For that reason, OFAC states that also transactions, which appear to be associated with blocked persons via other addresses should be blocked.

OFAC recommends that especially companies dealing with administration, exchange, brokerage, or use of cryptocurrencies develop a tailored, risk-based compliance programme.

Recommendations for compliance programmes

If you are establishing or revising such a compliance programme, we recommend that you consider the following:

to map your cryptocurrency transactions and assess whether any of these might be subject to sanctions;
to set up a procedure which includes a screening of the SDN list in connection with all cryptocurrency transactions; and
to set up a procedure for handling transactions with potentially sanctioned persons or entities.

Essential risk assessment for all parties

It is important for all parties to a cryptocurrency transaction to assess the potential risk of OFAC sanctions. Among the parties are:

providers of cryptocurrencies and wallets, cryptocurrency brokers and exchanges and other transactions brokers, all of whom may be obliged to block transactions with sanctioned persons or entities and to freeze the funds;
suppliers receiving cryptocurrency payments from a potentially sanctioned person or entities; and
customers making cryptocurrency payments to a potentially sanctioned person or entities.

We are monitoring the development closely to see, whether the EU institutions follow suit.