April 25, 2018

Monthly Review

OFAC: Powerful Financial Regulator Enters Cryptocurrency Arena

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Summary

Recent guidance from the U.S. Treasury may alter the pace of cryptoasset adoption by financial institutions like none to precede it.

In December, Venezuelan President, Nicolas Maduro, announced the decentralized fundraising (Initial Coin Offering) of a new, state-run cryptocurrency called “Petro” - the value of which is said to be tied to the price of domestic petroleum. Maduro later reported that the raise had garnered up to $5bn in unmonitored, international investment, an obvious concern for countries with sanctions against Venezuela.

On March 19th, the White House released an Executive Order banning all U.S. persons from participating in the Petro token sale and demanding those already involved to freeze their investments. The US Treasury Department’s Office of Foreign Assets Control (OFAC) immediately issued guidance: published FAQs stating that cryptocurrency “addresses associated with blocked persons” will be added to its database of Specially Designated Nationals (SDNs), a list of people, organizations, and entities with whom U.S. persons are forbidden to transact.

OFAC has fined U.S. and international firms billions of dollars for violating sanctions laws in recent years. While it is unclear exactly how and when cryptocurrency information will be represented on the SDN list, the FAQ publication is evidence that the office has its eyes on entities using cryptocurrencies and will use its authority to punish those who violate its sanctions. Clarity from OFAC on this topic is relief for many businesses prepared to handle the office’s new stipulations, but a wake up call for others. Financial institutions with exposure to cryptocurrencies must take active measures in understanding their connection to entities on OFAC’s SDN list, while also installing adequate levers to measure and mitigate the subsequent risk.

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