Avoiding Sanctions with Cryptocurrency? US Govt Files First Criminal Charges

Last week America's Justice Department "launched its first criminal prosecution involving the alleged use of cryptocurrency to evade U.S. economic sanctions," reports the Washington Post. They cite a nine-page opinion from a federal judge approving the government's criminal complaint against an American "accused of transmitting more than $10 million worth of bitcoin to a virtual currency exchange in one of a handful of countries comprehensively sanctioned by the U.S. government: Cuba, Iran, North Korea, Syria or Russia. "In the ruling, the judge called cryptocurrency's reputation for providing anonymity to users a myth." He added that while some legal experts argue that virtual moneys such as bitcoin, ethereum or Tether are not subject to U.S. sanctions laws because they are created and move outside the traditional financial system, recent action taken by the Treasury Department's Office of Foreign Assets Control [OFAC] require federal courts to find otherwise. "Issue One: virtual currency is untraceable? WRONG ... Issue Two: sanctions do not apply to virtual currency? WRONG," Faruqui wrote... "The Department of Justice can and will criminally prosecute individuals and entities for failure to comply with OFAC's regulations, including as to virtual currency," Faruqui said. In the opinion, Faruqui wrote that he adopted guidance issued in October by OFAC, which stated that sanctions regulations apply equally to transactions involving virtual currencies as those involving the U.S. dollar or other traditional fiat currencies. Ari Redbord, who served in 2019 and 2020 as a senior adviser to the Treasury Department's undersecretary for terrorism and financial intelligence, called the case the first U.S. criminal prosecution targeting solely the use of cryptocurrency in a sanctions case. He said the ruling made clear such conduct is traceable and "immutable — in other words, transactions using cryptocurrency are forever.... What we are seeing is that the Department of Justice is going to actively go after actors that attempt to use cryptocurrency, but also that it is hard to use cryptocurrency to evade sanctions," Redbord said. "It shows, in many respects, cryptocurrency is not a good tool for sanctions evasion or money laundering." In this case, The Register reports, "An unnamed American citizen allegedly used a US-based IP address to run an online payments platform" in a sanctioned country. The service advertised itself as being "designed to evade US sanctions" and claimed its transactions were untraceable, it was alleged. We're told the defendant bought and sold Bitcoin using a US-based online currency exchange using fiat currency from a US bank account. The Post argues that this prosecution represents "a new U.S. criminal sanctions enforcement push targeting cryptocurrency transactions at a time of rising concern over the extent to which illicit actors can use or are using such methods to launder money or do business with countries the United States has cut off from the dollar..."

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