Sanctions fines in crypto for exchanges

What are sanction fines?

Sanctions are imposed by states to prevent criminal behaviour and to restrict the influence of officials from foreign governments. Due to the US dollor's status as a reserve currency, the most powerful authority to prosecute sanctions is the US Treasury’s Office of Foreign Assets Control (OFAC). OFAC's record fine of USD 9 billion was paid by BNP Paribas. The Office of Financial Sanctions Implementation (OFSI) is the equivalent UK authority and its largest sanction penalty amounted to more than USD 27 (GBP 20) million.

Are such fines possible for crypto institutions?

Early this year in February 2021, BitPay was struck with charges by the OFAC which identified 2,000 apparent sanction violations and conceded to settle for more than USD 500 thousands. In essence, Bitpay facilitated payments with sanction countries and the origin of payments was not hidden with a VPN but clearly available based on IP addresses (OFAC's web notice).

Again, this year OFAC is switching gears in 2021 and is working to extend one of its critical tools to determine sanction violations, the sanction target list called SDN list. Such SDN list may include specific Bitcoin, Ethereum or USD Tether addresses. For instance, the Czech/Russian exchange Suex.io was added as it allowed to liquidate received proceeds extorted from victims with Ransomware. EU authorities have not taken any actions, it seems.

Are exchanges doing enough?

Unfortunately, the current regulatory regime allows many central and decentralised exchanges to operate without being clear about the safeguards offered against sanction prosecution. Moreover, companies such as Chainanalysis seem to have identified more addresses that may allow to clearly identify a sanction breach but do not disclose these. Eventually, regulators such as the OFAC should be able to promote transparency in the metaverse to address any concerns that fines are levied arbitrarily.

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