Fair Warnings from OFAC’s Settlements with Cryptocurrency Service Providers: Compliance Should Include Lifetime-of-the-Relationship, In-Process Geolocational Checks
Business Law Today, February 21, 2023
In 2022, the Office of Foreign Assets Control (OFAC) announced numerous settlements with cryptocurrency exchanges. These settlements serve as “fair warnings” to all cryptocurrency service providers who are “U.S. persons” or who offer services to U.S. persons. The term “U.S. persons” is defined in 31 C.F.R. §560.314 as “any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.”
This article focuses on these “fair warnings” as they have accumulated from prior settlements and from OFAC’s published guidance on compliance requirements that have been public for some time.
This article uses two late 2022 OFAC settlement announcements—with West-Coast-based Bittrex, Inc. and Payward, Inc. d/b/a Kraken—to make clear that OFAC was adhering to a previously announced requirement on providers of financial services. Specifically, OFAC requires more than verification of identity at onboarding and periodic checking of customers against OFAC’s Specially Designated Nationals (SDN) list. Additionally, providers should employ lifetime-of-the-transaction and in-process geolocation checking in their interdiction screening. Geolocation screening in lifetime-of-the-relationship and in-process transactions raised the stakes for providers to block or reject transactions that would violate the sanctions regimes OFAC enforces.
The last part of this article walks through other fair warnings provided by settlements agreed to since March 2015 or other public guidance. Before discussing the two late 2022 settlements or the fair warnings, it may help to have the foundation of the March 2015 settlement OFAC made with PayPal, Inc.
Hughes, Sarah Jane, "Fair Warnings from OFAC’s Settlements with Cryptocurrency Service Providers: Compliance Should Include Lifetime-of-the-Relationship, In-Process Geolocational Checks" (2023). Articles by Maurer Faculty. 3073.
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