24 January 2023
At Themis we offer global coverage of sanctions to help you best understand your specific sanctions risk exposure. Whether you are doing business with a crypto service provider or concerned about customer or third party risk exposure through crypto transactions, Themis Search & Monitoring is here to help.
What are crypto sanctions?
As governments step up their fight against financial crime threats posed by new technologies and novel forms of value transfers, the use of crypto-related sanctions is on the rise. The targets of sanctions range from specific virtual currency addresses associated with malicious actors to crypto service providers helping facilitate money laundering and other harmful activity. Sanctions also include the designation of virtual currency (crypto) transactions and crypto mining.
Last year saw some of the biggest crypto-related designations, such as the Office of Foreign Assets Control (OFAC) sanctioning decentralised mixer Tornado Cash and the Russia-based cryptocurrency exchange Garantex. This is likely indicative of future trends around crypto-related sanctions. Key types of sanctions include:
- Virtual currency addresses linked to specific designated individuals or entities;
- Virtual currency service providers facilitating money laundering, sanction evasion, and other financial crimes;
- Specific types of virtual currency transactions;
- Virtual currency mining companies and suppliers.
What crypto coverage does Themis provide?
Themis Search is updated every 6 hours to include the latest sanctions, incorporating sanctions lists from across the world so your business can screen against sanctions designation lists and regulatory and law enforcement sources from over 125 sources world-wide including the UN, EU, US, and UK. Any individual or entities designated under these programmes for crypto related activities (such as sanctioned crypto exchanges or other providers) will be included in Themis Search.
Taking the decentralised mixing service Tornado Cash as an example, you can see the comprehensive coverage provided by Themis Search. Using Themis Search, you can see that the entity was sanctioned in 2022 by OFAC for facilitating money laundering. You can also screen for other risk factors related to the service, such as its litigation and adverse media history. Additionally, you can screen across its network of affiliated entities to identify other sanctioned or high risk entities, including another sanctioned crypto service provider.
As countries crack down on crypto related financial crime, more crypto service providers will likely find themselves facing regulatory issues. Themis Search provides extensive coverage of any regulatory or law enforcement activity faced by crypto service providers. One of the highest profile cases to date is Kraken, a crypto trading platform accused by OFAC of violating sanctions related to the Iranian Transactions and Sanctions Regulations in the US. In November 2022, Kraken settled with OFAC for over $362,000. As part of its settlement, Kraken also agreed to invest an additional $100,000 in certain sanctions compliance controls.
What are your compliance obligations for crypto?
Compliance obligations for most countries are the same regardless of whether a transaction is denominated in digital currency or traditional fiat currency. Specific requirements will depend on the jurisdiction (see here for OFAC requirements as an example), so it is important to know the specific regulations in each jurisdiction in which you operate. Themis provides the necessary suite of tools to stay up to date with these regulations as well as monitor sanctions and regulatory enforcement activity.
As a general matter, individuals and entities including firms that facilitate or engage in online commerce or process transactions using digital currency are responsible for ensuring that they do not engage in unauthorised transactions prohibited by sanctions. Various jurisdictions including the US and UK enforce sanctions on a strict liability basis, meaning liability may be determined even where there was no knowledge or reasonable suspicion of the violation. Companies should therefore review their internal sanctions compliance to ensure they have comprehensive processes and procedures in place to identify and mitigate sanctions risk.
As demonstrated by the Kraken case described above, there is real risk of crypto exchanges and other service providers unknowingly violating sanctions programmes by helping illicit actors evade sanctions and conduct criminal activity. Due to Kraken’s failure to implement appropriate geolocation tools in a timely manner, including an automated internet protocol (IP) address blocking system, the trading platform exported services to users who appeared to be in Iran when they engaged in virtual currency transactions on Kraken’s platform.
The settlement amount was low, reflecting OFAC’s determination that Kraken’s apparent violations were non-egregious and voluntarily self-disclosed. However, there has been extensive damage done to Kraken’s reputation as a reliable platform, which is very important in today’s volatile crypto space. With fines increasing globally for sanctions violations and the crypto industry under more scrutiny than ever before, businesses cannot afford to get crypto compliance wrong.