The Evolving Use of Sanctions
Take a look at the newest trends and updates from key sanction regimes worldwide.
Download nowThe Office of Financial Sanctions Implementation (OFSI) has issued guidance for service providers in the crypto market, stating relevant firms must report suspected sanctions breaches to authorities. The updated guidance brings crypto exchanges and wallet providers in line with the reporting obligations faced by banks and other financial institutions.
This move by the OFSI follows guidance issued by the Financial Conduct Authority (FCA) earlier this year. A statement from the two bodies noted that “the use of cryptoassets to circumvent economic sanctions is a criminal offense under the Money Laundering Regulations 2017 and regulations made under the Sanctions and Anti-Money Laundering Act 2018.”
While using cryptocurrencies to evade sanctions was already illegal in the UK under laws that cover all “economic resources”, the new guidance from OFSI explicitly references “crypto assets” among the financial instruments that must be frozen if sanctions are imposed upon an entity. The US and EU made similar updates that included explicit references to crypto assets in their revised guidance issued in February and March, respectively.
Under the new guidance, cryptoasset exchanges and custodian wallet providers must report to OFSI if:
OFSI notes that firms only need to report the above information if it becomes apparent while carrying out business. Failure to report clients designated for sanctions to OFSI will be a criminal offense.
According to a red alert update issued by the Joint Money Laundering Intelligence Taskforce (JMLIT) earlier this year, designated persons are expected to be using crypto services, associates, and close contacts to evade sanctions, move significant sums of money, and protect their personal or commercial holdings.
Ukrainian prosecutors witnessed this in July when they reportedly seized €850,000, 830 kilograms of silver, six pieces of land, and three apartments, all of which were the proceeds of illegal crypto trades with users from Russia and Russia-occupied territories.
In the red alert update, JMLIT includes a 34-point list of indicators suspected of being used to evade sanctions, including:
Firms should ensure that appropriate levels of due diligence, including source of funds and source of wealth checks, align with their risk appetite and any new reporting obligations. Complex corporate ownership structures should also be reviewed carefully as part of any enhanced due diligence for high-risk clients to ensure any reports to OFSI includes relevant, detailed information.
To stay up to date with the latest information on financial sanctions, including amendments to the consolidated list of asset freeze targets, compliance staff should consider subscribing to OFSI’s free email alert service.
Take a look at the newest trends and updates from key sanction regimes worldwide.
Download nowOriginally published 09 September 2022, updated 22 August 2024
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