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The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) on February 18, 2021, announced an enforcement action against BitPay, Inc. for several apparent violations of U.S. economic sanctions. This is the second publicly-announced OFAC enforcement action focused on the cryptocurrency industry, following OFAC’s resolution with BitGo, Inc. at the end of 2020. 

BitPay agreed to pay a $507,375 fine to resolve 2,102 apparent violations of multiple OFAC sanctions programs, including Crimea, Cuba, North Korea, Iran, Sudan, and Syria. BitPay allegedly allowed persons located in those sanctioned jurisdictions to transact with merchants in the U.S. on BitPay’s platform, engaging in approximately $129,000 worth of digital currency-related transactions with BitPay’s merchant customers. 

The apparent violations are related to BitPay’s payment processing service, which enables merchants to accept digital currency as payment for goods and services. BitPay received digital currency payments from buyers of its merchants, thus the customers of its customers, who were located in sanctioned jurisdictions. BitPay then converted those digital currency payments into fiat currency and relayed those payments to its merchants. 

 Notably, OFAC found that while BitPay screened its direct customers (i.e., merchants), it failed to sufficiently screen its merchants’ buyers, including using location data as part of the screening process (which BitPay allegedly had access to but did not fully integrate as part of the diligence process). 

LEGAL TOKENS

This announcement represents OFAC’s second public enforcement action in the cryptocurrency industry and could signal a deeper regulatory focus. All U.S. persons are subject to OFAC sanctions, regardless of regulatory or licensing status (e.g., even if your company is not licensed or otherwise a “financial institution” subject to the Bank Secrecy Act, you will still be required to comply with U.S. sanctions). Additionally, OFAC sanctions are typically “strict liability,” meaning that even inadvertent or unintentional violations can still be penalized, which appears to have been the case in this enforcement action.

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Andrew Jacobson | Associate

A former enforcement attorney at the New York State Department of Financial Services (DFS), Andrew Jacobson represents individual and institutional clients at Seward & Kissel in connection with complex governmental investigations, regulatory probes, and related civil matters. While at the DFS, Andrew was involved in early cryptocurrency issues and brought some of the most significant enforcement actions for violations of U.S. economic sanctions and anti-money laundering laws.

Andrew has extensive experience advising on matters relating to U.S. economic sanctions, including those administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and anti-money laundering laws. Andrew serves as Chair of the Export Controls, Sanctions, and Anti-Corruption Subcommittee of the International Bar Association, co-chair of the Virtual Commodity Association’s BSA/AML Committee, and is a member of the Digital Chamber of Commerce’s AML Task Force.

As a member of Seward & Kissel’s Blockchain and Cryptocurrency Group, Andrew regularly advises clients on all aspects of financial crimes compliance and licensing in the virtual asset industry, including:

  • OFAC and FinCEN regulatory requirements, including asset blocking and reporting obligations;

  • Unhosted wallets and risks to software providers and VASPs;

  • Privacy coins, mixers, and other external privacy mechanisms;

  • Technology and open-source user platforms;

  • Ransomware and other cyberattack-related ransom payments;

  • BitLicense and state licensing requirements; and

  • Counterparty due diligence and screening.

 

“This is certainly a lesson to senior management to take compliance seriously and that there are consequences for individuals who don’t follow the regulatory regime.”

Andrew’s thoughts on BitMEX indictment, as published in Law360 article “BitMEX Case Seen as Blessing in Disguise for Crypto Sector”