On March 31, 2023, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced that it had reached a settlement with a multi-asset trading platform that includes digital assets. The trading platform agreed to pay $72,230 to settle its potential civil liability for apparent violations of OFAC’s sanctions against Iran, Cuba, and Venezuela.
According to OFAC, the trading platform failed to properly screen customers during its onboarding process for sanctions compliance, and consequentially processed transactions for customers who were located in Iran or Cuba and for employees of the government of Venezuela in violation of OFAC sanctions. In particular, customers were able to bypass screening procedures during the account opening process by selecting a non-sanctioned country from a drop-down menu while providing a separate location within a sanctioned country in a free text address field, which was not screened for sanctions compliance. At other times, customers provided identification documentation from a sanctioned country but the platform did not screen or flag that documentation. OFAC stated that the trading platform ultimately “failed to exercise due caution or care when it onboarded or conducted diligence on customers” and “implemented inadequate screening and other compliance processes.” OFAC’s announcement also noted that, while the statutory maximum civil monetary penalty applicable to the case was $44 million, the platform faced a significantly lower penalty because it had voluntarily self-disclosed the violations, cooperated with OFAC’s investigation, and undertook significant remedial measures.
In recent years, OFAC has tightened its focus on the crypto industry, announcing settlements with digital asset companies and sanctioning a crypto mixer. In 2021, OFAC published sanctions compliance guidance for the crypto industry, noting that the growing prevalence of cryptocurrency as a payment method brings greater exposure to sanctions risks.
Through its actions, OFAC is educating the crypto industry about its compliance expectations. Crypto companies should take note of the specific deficiencies highlighted by OFAC in this case, such as the failure to screen all onboarding materials. Additionally, automated screening solutions should be supplemented with other compliance initiatives such as employee training. Companies that provide money exchange services should conduct a risk assessment and adopt a holistic approach to managing compliance risks that reflects the particular systems, tools, and processes by which they conduct their business.