"Sanctions Compliance Guidance for the Virtual Currency Industry" (the Virtual Currency Guidance), a new guidance report from the US Treasury Department's Office of Foreign Assets Control (OFAC), analyze sanctions compliance criteria for the virtual currency industry and defines OFAC's perspective of compliance best practices in that marketplace. The Virtual Currency Guidance, like previous industry guides produced by OFAC, does not push boundaries. Still, it does present a streamlined and user-friendly compendium of current OFAC activities and resources. In addition, it offers a summarized insight of the OFAC-managed economic sanctions programs, record-keeping and documenting requirements, licensing and regulation processes, OFAC's desires regarding sanctions compliance programs as described in previous OFAC guidance.
The most prominent takeaway from OFAC's published guide of the Virtual Currency Guidance is that it indicates the scope to which the cryptocurrency market is likely to be a major primary concern for OFAC in aspects of both conformance efforts and regulation in the future.
Key Takeaways from the Guide
- Importance of Early Integration of Sanctions Compliance: To ensure effective compliance in the cryptocurrency sector, it is crucial to incorporate sanctions compliance requirements into company strategies and product design right from the start. Delaying the formulation and deployment of a sanctions compliance program can expose cryptocurrency businesses to potential sanctions threats. Adequate resources and senior management commitment are essential for establishing compliance rules.
- Geolocation Tools and IP Blocking Measures: Geolocation tools and IP location blocking measures play a critical role in a comprehensive sanctions compliance program for virtual currency firms. These safeguards are necessary to prevent individuals residing in fully sanctioned areas from using platforms or services for illicit activities. OFAC suggests not only adopting restrictions to prevent access from sanctioned areas but also utilizing analytic tools to identify IP misattribution, which may indicate an attempt to circumvent sanctions rules.
- Strict "Know Your Customer" Policies: Virtual currency firms are required to have strict "know your customer" (KYC) policies in place. While many businesses already face formal Anti-Money Laundering (AML) requirements, OFAC emphasizes the need for guiding principles that include address and proof of identity. This implies that data collected during onboarding and continuous transaction monitoring should include various information such as name, date of birth, physical and email address, nationality, IP addresses associated with logins, banking information, and government identity and residence documents.
- Responsibility for Utilizing Relevant Information: Virtual currency businesses can be held accountable if they possess but fail to utilize information relevant to sanctions compliance, resulting in non-compliance. OFAC highlights two recent cases where virtual currency businesses acquired information indicating that customers or other transaction parties were located in sanctioned countries but failed to apply sanctions-related procedures. This emphasizes the importance of actively monitoring and utilizing available information to ensure compliance with sanctions regulations.
- Use of Virtual Currency Addresses on the SDN List: Since 2018, OFAC has included virtual currency addresses as part of the identifying information on the List of Specially Designated Nationals and Blocked Persons (SDN List). Virtual currency sector enterprises are expected to employ technologies capable of identifying and blocking transactions connected with virtual currency addresses on the SDN List. Furthermore, including these addresses on the SDN List can help identify additional virtual currency addresses associated with blacklisted individuals or represent a sanction risk, even if not explicitly listed. While blockchain analytics tools are valuable for such investigations, OFAC emphasizes that specific in-house or third-party software is not required for compliance.
How to Comply with the New Virtual Currency Guideline?
OFAC's most recent guidance on sanctions compliance involving virtual currency clarifies the office's objectives while also providing practical tips to help with compliance. With virtual currency becoming more common in business across all industries, all businesses should evaluate their current sanctions compliance programs in view of OFAC's guidance and recognize any needed adjustments in screening tools, use of collected data for compliance goals, geolocation blocking, KYC protocols, and other control mechanisms appropriate for their industry and risk-profile. If you would like to comply with the new virtual currency framework defined by OFAC and learn about Sanction Scanner's AML solution, you may contact us and request a demo.