Moscow also routinely uses its intelligence services, government-directed proxies, and covert influence tools in these efforts. The Kremlin has increasingly adapted its efforts to hide its involvement by developing a vast ecosystem of Russian proxy websites, fake online personas, and front organizations that give the false appearance of being independent news sources unconnected to the Russian state. Rather, OFAC encourages companies to strengthen their “defensive and resilience measures” to guard against potential ransomware attacks. OFAC provides examples of these types of measures, which include maintaining offline backups of data, developing incident response plans, updating antivirus software, and instituting targeted training. As a result of today’s action, all property and interests in property of the designated persons described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC.
The guidance notes that the growing prevalence of virtual currency as a payment method brings greater exposure to sanctions risks, such as the risk that a sanctioned person or a person in a jurisdiction subject to sanctions might be involved in a virtual currency transaction. On October 15, 2021, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a compliance guide for the virtual currency industry and updated the answers to frequently asked questions (FAQs) 559 and 646. OFAC acknowledged that it released the guidance because virtual currencies are playing an increasingly prominent role in the global economy and in payments. In October, the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published new guidance for the virtual currency industry focusing on compliance with the financial industry’s obligations related to U.S. economic sanctions. Digital currency includes sovereign cryptocurrency, virtual currency (non-fiat), and a digital representation of fiat currency.
The FAQ notes that once US persons determine that they hold virtual currency that is required to be blocked pursuant to OFAC’s regulations, they must deny all parties access to that virtual currency, ensure that they comply with OFAC regulations related to the holding and reporting of blocked assets and implement controls that align with a risk-based approach. OFAC also notes that US persons are not obligated to convert the blocked virtual currency into traditional fiat currency (e.g., US dollars) and are not required to hold such blocked property in an interest-bearing account. However, blocked virtual currency must be reported to OFAC within 10 business days, and thereafter on an annual basis, so long as the virtual currency remains blocked. First, FAQ 559 defines the terms “digital currency,” “digital currency wallet,” “digital currency address” and “virtual currency” for the purposes of OFAC sanctions.
In discussing the importance of conducting risk assessments, the guidance mentions a settlement agreement that OFAC entered into earlier this year with a US virtual currency payment service provider. It notes that while the company conducted sanctions screenings of its direct customers—merchants located in the United States and elsewhere—it failed to screen available information about the individuals who used its payment processing platform to buy products from those merchants. US economic sanctions cover all “US persons,” which includes any US citizen, permanent resident alien, entity organized under the laws of the United States, or any person in the United States. In the case of some OFAC sanctions programs, the prohibitions also apply to non-US entities that are owned or controlled by US persons.
The OFAC guidance outlines certain sanctions compliance best practices specific to virtual currency companies and other industry participants. For example, OFAC recommends that virtual currency companies implement specific internal controls designed to identify and interdict virtual currency transactions that are prohibited by US sanctions. On September 21, 2021, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) took two important actions to counter the growing threat of ransomware attacks and the malicious cyber actors who support them, often through the use of digital assets. First, it designated SUEX OTC, S.R.O. (SUEX), as a Specially Designated National (SDN), which marks the first time that OFAC has added a virtual currency exchange to the SDN List. Second, it issued an “Updated Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments” (2021 Ransomware Advisory), which provides additional guidance to companies on how to mitigate these sanctions risks proactively.
Persons are also prohibited from causing or conspiring to cause U.S. persons to violate U.S. sanctions, wittingly or unwittingly, as well as engage in conduct that evades U.S. sanctions. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation. WASHINGTON – Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating a subordinate organization of Iran’s Islamic Revolutionary Guard Corps (IRGC), and a Moscow-based affiliate organization of the Russian Main Intelligence Directorate (GRU) and its director pursuant to Executive Order (E.O.) 13848, the U.S. election interference authority. As affiliates of the IRGC and GRU, these actors aimed to stoke socio-political tensions and influence the U.S. electorate during the 2024 U.S. election.
Engaging in transactions with SUEX or other sanctioned parties could expose otherwise lawful actors in the digital currency space to sanctions or enforcement actions by the US government. The growing relevance of virtual currency, both as an investment and as a payment method, brings greater exposure to sanctions risks. Specifically, there is an increased risk that a sanctioned entity or an entity in a jurisdiction subject to sanctions might use virtual currency as an alternative to fiat currency in an effort to avoid U.S. sanctions. As such, the OFAC guidance specifically targets technology companies, virtual currency exchanges, virtual currency administrators, virtual miners, digital currency wallet providers, and users.
This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction and you should not act or refrain from acting based on this content. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Do not send any confidential information to Cooley, as we do not have any duty to keep any information you provide to us confidential. Taken together, these recent developments demonstrate the current administration’s heightened focus on cryptocurrency and other forms of digital assets.
