Just like any other businesses, crypto enterprises should also comply with certain rules and regulations or else face a great sanction. With the rise of these enterprises, the compliance risk also rises. According to the Office of Foreign Assets Control (OFAC), they see a sizeable risk if a digital wallet will be equally the same in function with bank accounts. Because of this, it will require the same compliance.
Compliance and sanctions are made to protect those who use cryptocurrency. There are a lot of related risks that come with cryptocurrencies. Few of those are the potential for abuse and fraud, money laundering, and lack of a clear understanding of how cryptocurrencies are sold and traded via distributed ledger technology (DLT).
There is still a great challenge when it comes to complying with sanctions for exchanges and other service providers in the cryptocurrency industry, as well as for banks and other financial institutions even if they only have indirect exposure to cryptocurrency users. And even though some financial institutions can screen and check them against sanctions lists that are maintained by the US, EU, and the UK, it could still be tricky.
Let’s say that when someone sends money from one anonymous cryptocurrency address to another, the location and the address of the person behind it will not immediately be shown or known. And though there is some traceable information that could be found, the risk is still there. The risk of processing a cryptocurrency-related transaction without knowing whether it violates a sanction or not will always be there.
Because of all the risks and possibilities, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance that provides clarity on illicit Iranian financial activity that provides clarity about regulatory expectations in this challenging environment.
On the other hand, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that any U.S. person dealing in Venezuela’s cryptocurrency called the Petro, could run afoul of U.S. sanctions against the Venezuelan government.
It is said that the possible sanctions risk that is related to cryptocurrency could be similar to money laundering and other financing risks but there are few unique challenges presented. The OFAC created a blacklist of persons that are prohibited in dealing with US goods, services, financial systems, and even people. OFAC also sanctions entire countries such as Iran, Syria, North Korea, and Cuba.
In these instances, U.S companies and individuals are prohibited from conducting business with individuals and entities located in these countries. If violations were made significant financial penalties or worse, criminal penalties will be sanctioned. And the reason for these sanctions is to provide warning and protection, to prevent criminals from receiving profits from their “underground” activities.
Because of this, some crypto players could be affected such as exchanges, investors, financial institutions, commercial businesses, and government-backed cryptos.
According to Identity Minds, there are 4 steps to stay on the right side of the sanction changes:
Prevention of direct transactions
Flag indirect transactions
The rise of this kind of technology entails the rise of currency-related crimes and because of this, awareness about its sanctions and its compliance risk must be spread.