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21 June 2021

Rogue states dodge economic sanctions, but is crypto in the wrong?

Rogue states dodge economic sanctions, but is crypto in the wrong?


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Rogue states dodge economic sanctions, but is crypto in the wrong?

When the United States first began going after crypto companies for violating its economic sanctions rules, it didn’t exactly start with a bang.

This was “the first published OFAC enforcement action against a business in the blockchain industry,”accordingto law firm Steptoe, though six weeks later, the OFACreached a similar settlement with BitPay, a payment processing firm, for 2,102 “apparent violations of multiple sanctions programs,” in which BitPay reportedly allowed persons in the same countries as in the BitGo case — but with the addition of North Korea — “to transact with merchants in the United States and elsewhere using digital currency on BitPay’s platform even though BitPay had location information, including Internet Protocol addresses and other location data, about those persons prior to effecting the transactions.” BitPay agreed to pay $507,375 to resolve its potential civil liability. .

It’s worth mentioning that economic sanctions are typically applied “against countries and groups of individuals, such as terrorists and narcotics traffickers,”accordingto the United States Treasury, typically “using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.”.

“The crypto industry should absolutely expect more enforcement actions from OFAC, and it can expect that there will be much larger penalties as well,” David Carlisle, director of policy and regulatory affairs at Elliptic, tells Magazine.

One of the best-known early crypto cases involvedVirgil Griffith, a former hacker, who was arrested in April 2019after he spoke at a blockchain and cryptocurrency conference in North Korea, in violation of sanctions against that outcast nation, the U.S.

authorities who are concerned about “bad actors” using the nascent blockchain technology to dodge economic sanctions?

As crypto adoption grows, it seems only inevitable that its decentralized finance (DeFi) networks will push up against more nation-state prerogatives, including economic sanctions.

Forensic blockchain firms, however, are looking into how to “improve sanctions compliance on the part of virtual asset service providers,” McCalmont comments.

“Not only do you need to screen addresses against the OFAC list, you should have systems that are calibrated to detect more subtle signs of sanctions risk, and your staff must be trained to handle situations that involve possible sanctions issues.”.

“The crypto industry will need to operate to very high standards of sanctions compliance to avoid run-ins with OFAC.”.

Recent sanctions activity is just part of a global crackdown that can be expected in the crypto sector, some say

In the absence of new crypto legislation and regulatory guidance, the players themselves — i.e., the crypto and blockchain industry — need to get their house in order, James Cooper, associate dean of experiential learning at California Western School of Law in San Diego, tells Magazine, adding, “We have an obligation to create self regulatory organizations

If 95% percent of media stories and the public’s conversation about crypto focuses on ransomware or Iranian miners or criminal entities, “then something is wrong,” continues Cooper, because all the good things, like blockchain for food security or blockchain for vaccine tracing, get pushed out. 

More promising in his view are the Financial Action Task Force’s recent updated complianceguidelines, which make clear “that decentralized exchanges as well as other DeFi platforms do bear responsibility for ensuring compliance with global sanctions as well as Anti-Money Laundering and Counter-Terrorism Financing laws

Many have called for international collaboration for addressing these new technological developments, like crypto and blockchain, notes Ferreira, but “I am not sure how feasible it is

A young, evolving sector like the crypto and blockchain industry will inevitably have “vacuums” that nefarious, non-state actors will seek to exploit “until the state comes in and kicks them out,” Cooper tells Magazine. 

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