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First Cryptocurrency Criminal Case Related to Evasion of Sanctions

A District of Columbia federal U.S. Magistrate Judge recently found that the Department of Justice (“DOJ”) could proceed with the first-ever criminal prosecution where the DOJ charged that cryptocurrency transactions were used to evade U.S. sanctions. In an opinion unsealed on Friday, U.S. Magistrate Judge Zia M. Faruqui found that the DOJ had shown probable cause that a U.S. citizen, whose name is redacted in the decision, transmitted more than $10 million in bitcoin between the U.S. and an unidentified sanctioned country to help customers evade U.S. sanctions.  The unidentified defendant marketed his cryptocurrency platform as a way to evade sanctions.  Notably, Judge Faruqui confirmed that sanctions laws apply equally to transactions involving virtual currencies and those involving traditional fiat currencies.  Interestingly, Judge Faruqui also predicted the primacy of cryptocurrency, and stated that “[t]he question is no longer whether virtual currency is here to stay…but instead whether fiat currency regulations will keep pace with frictionless and transparent payments on the blockchain.”

The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury has previously brought civil sanctions-related enforcement actions against cryptocurrency exchanges for such violations.  For example, in November 2021, OFAC brought an action against a Latvia-based cryptocurrency exchange, Chatex, for facilitating financial transactions for actors involved in ransomware.  Chatex was designated as a “Specially Designated National.”  Similarly, in February 2021, OFAC reached a $507,000 settlement with BitPay Inc. for multiple sanctions violations.  BitPay allowed sanctioned persons located in the Crimea region of Ukraine, Cuba, North Korea, Iran, Sudan, and Syria to transact with U.S. merchants using digital currency on BitPay’s platform.

While the sealed criminal complaint here, charging conspiracy to defraud the United States and violate the International Emergency Economic Powers Act in connection with the use of cryptocurrencies to evade sanctions, is the first of its kind, it certainly will not be the last.  The DOJ, as well as other regulators and lawmakers, have made clear that they are ramping up their enforcement efforts in the cryptocurrency space.  And, as Judge Faruqui stated in his opinion, “Civil liability is not the ceiling. . . The [DOJ] can and will criminally prosecute individuals and entities for failure to comply with [sanctions] regulations, including as to virtual currency.”

Tags

cryptocurrency, bitcoin, sanctions

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