The Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries, regimes, groups, and individuals. The law’s broad prohibition of transactions, coupled with potential exposure to large civil fines and criminal penalties for violations, should impact or at least concern all who engage in international financial transactions.
Several weeks ago, OFAC specifically addressed virtual currencies for the first time. See OFAC Resource Center, OFAC FAQs: Sanctions Compliance, Questions on Virtual Currency, FAQ Nos. 559–563 (Mar. 19, 2018). In its guidance, OFAC defined “digital currency” to include “virtual currency” which, in turn, is defined as a “digital representation of value that functions as (i) a medium of exchange; (ii) a unit of account; and/or (iii) a store of value; is neither issued nor guaranteed by any jurisdiction; and does not have legal tender status in any jurisdiction.” The use of the phrase “and/or” may seem innocuous, but by decoupling the three parts of this accepted economic definition of currency, OFAC is expressing its ability to control exchanges of all cryptocurrencies and related products, even if the products do not technically meet the accepted definition of a currency.
OFAC explained as follows: “… U.S. persons and persons otherwise subject to OFAC jurisdiction, including firms that facilitate or engage in online commerce or process transactions using digital currency, are responsible for ensuring that they do not engage in unauthorized transactions prohibited by OFAC sanctions, such as dealings with blocked persons or property, or engaging in prohibited trade or investment-related transactions. Prohibited transactions include transactions that evade or avoid, have the purpose of evading or avoiding, cause a violation of, or attempt to violate prohibitions imposed by OFAC under various sanctions authorities. Additionally, persons that provide financial, material, or technological support for or to a designated person may be designated by OFAC under the relevant sanctions authority.” Furthermore, OFAC counseled that “persons including technology companies; administrators, exchangers, and users of digital currencies; and other payment processors should develop a tailored, risk-based compliance program, which generally should include sanctions list screening and other appropriate measures. An adequate compliance solution will depend on a variety of factors ….” See FAQ No. 560.
The OFAC guidance raises technical and legal compliance issues which should be addressed by all organizations, including blockchain platforms, involved with virtual currencies, as OFAC defines that term.
Offit Kurman’s technology lawyers can help you fashion a compliance program to ameliorate the threat of OFAC sanctions. Questions?
Please contact Edward Tolchin at firstname.lastname@example.org.
ABOUT EDWARD TOLCHIN
Edward Tolchin is a Principal and Chair in the firm’s Government Contracting practice group. Mr. Tolchin’s practice is focused on government contracting, business litigation, and technology matters. In the technology arena, Mr. Tolchin has assisted in disputes, licensing, and business development matters for clients ranging from startups to Fortune 500 companies. Mr. Tolchin’s interest in and knowledge of technology issues also has enabled him to assist clients involved in security and privacy disputes and business issues in the cyber arena. Mr. Tolchin has an active blockchain practice and has written and spoken regarding the legal perspectives of blockchain enterprise development and cryptocurrencies.
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