Tough U.S. sanctions on Iran are returning on Monday (November 5) and cryptocurrencies are being afforded special attention by the Financial Crimes Enforcement Network (FinCEN).
"While the use of virtual currency in Iran is comparatively small, virtual currency is an emerging payment system that may provide potential avenues for individuals and entities to evade sanctions," the document read.
The bureau, which belongs to the United States Department of the Treasury, issued a document earlier this month with the aim of helping U.S. financial institutions to "better detect potentially illicit transactions related to the Islamic Republic of Iran (Iran)." It specifically mentioned virtual currency administrators and exchangers, as well as banks, money services businesses (MSBs), and dealers in precious metals, stones, and jewels.
The advisory statement included an entire segment headlined "Virtual Currency," while also having sections on Iran’s abuse of the international financial system, its use of procurement networks, and the regime’s illicit use of precious metals, among others.
FinCEN says that since 2013, Iran’s use of virtual currency includes at least $3.8M worth of Bitcoin-denominated transactions per year.
FinCEN went as far as recommending that institutions should consider reviewing blockchain ledgers for activity that may originate or terminate in Iran. "Institutions should also be aware that the international virtual currency industry is highly dynamic; new virtual currency businesses may incorporate or operate in Iran with little notice or footprint," the statement claimed.
"...Institutions can utilize technology created to monitor open blockchains and investigate transactions to or from P2P exchange platforms. Activity of these exchangers may involve wire transactions from many disparate accounts or locations combined with transfers to or from virtual currency exchanges...Financial institutions and virtual currency providers that have BSA and U.S. sanctions obligations should be aware of and have the appropriate systems to comply with all relevant sanctions requirements and AML/CFT (The Anti-Money Laundering and Countering Financing of Terrorism Act) obligations."
"While the use of virtual currency in Iran is comparatively small, virtual currency is an emerging payment system that may provide potential avenues for individuals and entities to evade sanctions." Financial Crimes Enforcement Network (FinCEN) advisory document
But it isn't just exchanges or businesses who have been warned by the U.S. Treasury, with FinCEN reminding U.S. citizens that their "compliance obligations with respect to transactions are the same, regardless of whether a transaction is denominated in virtual currency or not."
As highlighted on Twitter by Jake Chervinsky, a government enforcement defense and securities litigator at law firm Kobre & Kim in Washington, D.C., the focus on crypto in the renewed sanctions is extremely significant as "sanctions violations are 'strict liability' offenses, meaning OFAC (Office of Foreign Assets Control) doesn't have to prove knowledge or intent.
"If you transact with a sanctioned entity, you're liable even if you have *no idea* who you're transacting with," he noted.
Chervinsky concluded his thread by writing: "We spend a lot more time discussing the securities laws than we do trade sanctions. That's understandable given the scope and impact of the ICO bubble and the current state of the market. But long term, I think trade sanctions will become a much bigger issue. Token issuers who use crypto to evade the securities laws are a threat to speculative investors. State-level actors who use crypto to evade trade sanctions laws are a threat to U.S. foreign policy. Which one do you think the government cares about more?"
0/ We need to talk about US trade sanctions.— Jake Chervinsky (@jchervinsky) October 29, 2018
US-Iran sanctions are back in force on November 5 & the Treasury Department says they apply to crypto in full. If you thought the securities laws were complicated, prepare for a whole new level of regulatory uncertainty.