OFAC Scrutinizing Cryptocurrency Transactions

The Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury Department administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against foreign governments and other threats to national security, foreign policy, and threats to national security. OFAC regulations prohibit engaging in transactions with “blacklisted” foreign governments, companies, and individuals designated on its sanctions list.

The Office of Foreign Assets Control

While at first blush it may appear that OFAC focuses its scrutiny on its “Country List,” which includes such countries as Iran, North Korea, Ukraine-Russia, among others, its reach includes currency and cryptocurrency transactions that involve sanctioned parties. With the increasing growth of cryptocurrency and blockchain transactions, crypto and blockchain companies have been swept up into OFAC’s scrutiny. Given the nature of blockchain technology, it’s difficult for those companies to identify and prevent transactions that could implicate certain parties that might be on OFAC’s Country List.

Several companies over the past few years have run afoul of transactions involving governments, companies, and/or individuals on the Country List that have used digital currency, digital wallets, or software to manage digital currency transactions, including BitGo, Inc., BitPay, Inc., and Exodus Movement, Inc. Although BitGo, BitPay, and Exodus Movement each took remediating measures to resolve their enforcement actions with OFAC, as did Exodus Movement in its voluntary disclosure and response to OFAC’s administrative subpoena, those companies and cryptocurrency and bitcoin transactions remain subject to continuing scrutiny and enforcement actions by OFAC.

Cryptocurrency Transactions Under Scrutiny

Given the strict liability standard that OFAC imposes for violations of U.S. economic sanctions along with the doctrine of “implicit constructive knowledge” of the parties involved, it behooves those engaged in cryptocurrency and bitcoin transactions to develop and implement robust due diligence and involved-party vetting process as well as a dedicated self-audit program to identify any violations and both to correct them and to be able to self-report to OFAC in the interest of mitigating any possible sanctions.