U.S. Treasury, a Crypto Custodian Service, and Sanctions

Iran, Cuba as well as several other countries suffered losses due to the U.S. sanctions. Recently, The U.S. Treasury settled with BitGo regarding charges that it facilitated users in sanctioned areas to transact using its crypto wallet services between 2015 and 2019.

It is worth noting that, BitGo did not do due diligence in blocking wallet users based in Crimea, Iran, Cuba, Sudan, as well as Syria. As a Reminder, BitGo is an institutional crypto custodian service and wallet operator

Based on the information provided by the U.S. Treasury, it identified 183 apparent violations of its various sanctions programs, adding up to just over $9,000 in transactions. Furthermore, they keep the status of “apparent” as the accusations are based on the IP addresses from which users accessed BitGo hot wallets.  

According to the Treasury, BitGo screens all accounts, including “hot wallet” accounts, aghast OFAC’s Specially Designated Nationals and Blocked Persons List. More specifically, this includes blocked cryptocurrency wallet addresses identified by OFAC. The Treasury mentioned the information stated above as one of the mitigating factors. As a reminder,  OFAC refers to the Treasury’s Office of Foreign Asset Controls.

Crypto and U.S. sanctions

It is worth mentioning that, the settlement will cost BitGo $98,830. Furthermore, after taking into accounts the hawkishness of OFAC’s programs, the settlement is relatively lenient. However, the actual value transferred was less than 10% of the fine. Importantly, the civil penalty had the case gone to court, would have been between $183,000 and $53 million.  

This decision shows that OFAC will be looking more closely at crypto servicers. In fact, all companies involved in providing such services should understand the risks associated with providing digital currency services. Importantly, they should take measures to mitigate those risks.

The regulators are increasing their expectations for companies handling virtual currencies to know their customers on the other end. As a reminder, several days ago the U.S. Treasury proposed rules obliging registered financial institutions to know the identity of users of self-hosted wallets with which they are transacting. 

It is no secret that several countries are trying to evade U.S. sanctions. For example, Venezuela’s Maduro regime is interested in Bitcoin. BitGo and others should cooperate with authorities to identify such cases. In fact, it is imperative to enforce these sanctions as Iran, Venezuela, and other countries under U.S. sanctions are not willing to respect human rights.