OFAC recommendations for virtual currency industry participants
Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
In a care[...]
OFAC publishes U.S. virtual currency industry guidance for sanctions compliance
Linklaters | Oct 22, 2021
OFAC recommendations for virtual currency industry participants
A U.S. regulator has again reminded the virtual currency industry that it is subject to the same compliance obligations as more traditional industries. Last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued specific guidance regarding the application of U.S. sanctions requirements to the virtual currency industry.
OFAC views participants in the virtual currency industry as playing “an increasingly critical role in preventing sanctioned persons from exploiting virtual currencies to evade sanctions and undermine U.S. foreign policy and national security interests.”
See: CSA and IIROC Publish Guidance and Regulatory Framework for Crypto Asset Trading Platform Compliance
As with any sector of the economy, virtual currency industry participants are expected to evaluate a variety of factors in assessing their unique sanctions risks and formulating a risk-based compliance strategy. In the guidance, OFAC identifies the following key measures that virtual currency industry participants should carefully consider in implementing their risk-based compliance programs:
- Geolocation Tools – these tools allow companies to determine the locations of IP addresses, in particular to identify any that are in comprehensively sanctioned jurisdictions; OFAC makes clear that a failure to use such tools could lead to enforcement actions if transactions occur in relation to comprehensively sanctioned jurisdictions.
- KYC Procedures for the Virtual Currency Industry – OFAC recommends that companies perform information gathering throughout a customer relationship’s lifecycle: in connection with onboarding, during periodic reviews, and when processing transactions.
- Transaction Monitoring and Investigation Software – through this technology, companies can determine whether transactions involve certain identifying information that is associated with persons who are either on a sanctions list or are located in a comprehensively sanctioned jurisdiction.
- Sanctions Screening – as in virtually any industry, particularly the financial services sector, OFAC expects the virtual currency industry to implement controls reasonably designed to screen customers and counterparties against sanctions lists
See: Canadian Regulators Bringing the Canadian Crypto Sector to Heel
Looking ahead – the industry is on notice
OFAC’s guidance makes clear that it means to hold all actors in the virtual currency industry accountable, from technology companies to exchangers, administrators, miners, wallet providers, and even traditional financial institutions exploring new virtual currency assets and services.
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