OFAC Settlement With Crypto Exchange Highlights Continued Focus on VC Industry
The Office of Foreign Asset Control’s $1.2 million settlement with San Francisco-based currency exchange CoinList Markets this month shows U.S. sanctions enforcement of the cryptocurrency industry continues to be a “focus” for OFAC, Sheppard Mullin said in a December client alert. The firm said the case highlights the importance of virtual currency exchanges investing in compliance controls, especially if they offer financial services to customers around the world.
OFAC said CoinList, founded in 2017, processed 989 transactions between April 2020 and May 2022 for users living in Crimea, which violated Ukraine-/Russia-Related Sanctions Regulations. Although the company had several sanctions compliance measures in place -- including screening of new and existing customers against OFAC and other sanctions lists and blockchain analytics tools to identify touchpoints with high-risk jurisdictions -- OFAC said its screening procedures failed to capture users who said they lived in a non-embargoed country but who “nevertheless provided an address within Crimea.”
As a result, CoinList opened accounts for customers who listed “Russia” as their country of residence but who listed an address in Crimea in another data field, OFAC said. The company’s screening protocols “failed to recognize that ‘Crimea’ or a city name in Crimea, provided in another data field, indicated likely residence in Crimea.”
OFAC said the violations weren’t self-disclosed, adding that CoinList failed to “exercise due caution or care for its sanctions compliance obligations” and “knew or had reason to know” it was conducting transactions for people living in Crimea. In total, OFAC said the company processed transactions worth about $1.25 million over two years.
The company took several remedial compliance measures to fix its screening problems, OFAC said, including updating its filter settings to automatically reject users who report a residential address with a Crimean city. It also invested in new vendors for “review and verification of identity documents” and restricted party screening, along with tools to detect the use of virtual private networks that can obscure a user’s location.
CoinList didn’t respond to a request for comment.
The CoinList settlement follows a string of OFAC enforcement actions for alleged sanctions violations committed by other virtual currency platforms, including a $968 million settlement with Binance in November (see 2311210076), a $7.5 million settlement with Poloniex in May (see 2305010059) and a $362,000 fine for Kraken last year (see 2211280048).