OFAC Issues Guidance for Virtual Currency Industry Amid Mounting Regulatory Focus
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued guidance on how virtual currencies should be treated under U.S. sanctions requirements, amid a growing regulatory focus on the digital asset industry.
Compliance is Crucial for Virtual Currency Businesses
In a move that underscores the increasing importance of compliance for virtual currency businesses, OFAC emphasized that participants in the sector play a critical role in preventing sanctioned individuals and entities from exploiting virtual currencies to evade sanctions and undermine U.S. foreign policy and national security interests.
Understanding and Mitigating Sanctions Risks
The guidance is designed to assist industry participants in understanding and mitigating the unique risks associated with their sector, including those related to:
- Geolocation
- Customer due diligence
- Transaction monitoring
- Sanctions screening
Factors to Consider for Sanctions Risk Assessment
According to OFAC, virtual currency industry participants should consider a range of factors when assessing their sanctions risks, including:
- Business type, size, and sophistication
- Products and services offered
- Customers and counterparties
- Geographic location
Implementing Risk-Based Compliance Programs
The guidance recommends that companies implement risk-based compliance programs that include the use of:
- Geolocation tools
- KYC procedures
- Transaction monitoring software
- Sanctions screening
Designing Effective Sanctions Programs
However, OFAC made clear that simply screening customers against its Specially Designated Nationals and Blocked Persons List is not enough. Companies must design sanctions programs that actively identify red flags and seek to block transactions with individuals and entities that are a target of sanctions, even if they do not appear on a sanctions list.
Industry Response
The guidance comes as part of a broader trend of increased regulatory scrutiny in the virtual currency industry, which has seen enforcement actions taken by various U.S. agencies, including the Securities and Exchange Commission, the Financial Crimes Enforcement Network, and the Commodity Futures Trading Commission.
Take Immediate Action
Industry participants are advised to take immediate action to implement sanctions compliance steps in accordance with OFAC’s guidance, as failure to do so could result in enforcement actions.
Conclusion
The OFAC guidance emphasizes the importance of compliance for virtual currency businesses and provides a framework for understanding and mitigating sanctions risks. Industry participants must take immediate action to ensure that their companies are in compliance with U.S. sanctions requirements to avoid potential enforcement actions.