Wednesday, June 29, 2022

US prosecutors investigate crypto sanctions evasion

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The US Department of Justice is prosecuting the operator of a payment platform that ignored economic sanctions using cryptocurrency. As reported by The Washington Postit may be the first criminal prosecution of crypto-related sanctions evasion — underscoring both the technology’s potential to circumvent financial blocks and its traceability by law enforcement.

District of Columbia Magistrate Judge Zia Faruqui Revealed Prosecutor’s Existence in an opinion on a still closed case, omitting the name of the payment platform, as well as the “extensively sanctioned country” it was dealing with. (There are five such countries: Iran, North Korea, Syria, Cuba and the Crimean region of Ukraine.) The operator apparently used an exchange to buy $10 million in Bitcoin and send it to the country on behalf of platform customers.

Faruqui supports guidance from the Office of Foreign Assets Control (OFAC), saying virtual currencies are subject to economic sanctions. “The question is no longer whether virtual currencies are here to stay,” he writes, “but instead whether regulations for fiat currency will keep pace with frictionless and transparent payments on the blockchain.” Prosecuting criminal cases for intentional violations, particularly because OFAC could theoretically sue parties who were unknowingly led to participate — such as a crypto exchange used to buy the bitcoin — for civil violations.

The opinion also highlights that crypto is not as anonymous as some users think. The platform operator “did not hide the illegal activities of the payment platform. Defendant proudly stated that the payment platform could circumvent US sanctions by enabling payments via Bitcoin,” Faruqui writes. He suggests that they were lulled into a false sense of security. “Virtual currency is traceable… But like Jason Voorhees, the myth of virtual currency anonymity refuses to die.”

Crypto has come to the fore as a way to bypass barriers in international trade, particularly after the Russian invasion of Ukraine earlier this year. (This practice can be complicated by the extreme volatility of virtual currencies.) While the Ukrainian government raised millions of dollars through cryptocurrency donations, some individual Russians turned to crypto after their financial ties with the outside world were severed.

But Faruqui’s opinion is to throw cold water on criminal use of it. “Issue One: virtual currency is untraceable? WRONG,” he writes in a conclusion. “Problem two: sanctions don’t apply to virtual currencies? MIS.”

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