Digital Currency - What you should know when receiving funds from a sanctioned country


Digital currency, or "cryptocurrency," has become a prominent term when discussing money transfers, wiring, and banking. There are many misconceptions regarding cryptocurrency and its uses, so it is important to have adequate knowledge about it and its uses. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. It is neither issued nor guaranteed by any jurisdiction and does not have legal tender status in any jurisdiction. The term digital currency includes sovereign cryptocurrency, virtual currency, and a digital representation of fiat currency. A digital currency wallet is a software application that provides a means for holding, storing, and transferring digital currency. In the simplest terms, cryptocurrency is a digital asset that acts as a medium of exchange for money transfers.

Common Misconceptions:
Many people believe that if they engage in transactions through cryptocurrency or digital exchange sites, the transaction is not regulated, and the sanctions do not apply. That is NOT TRUE. OFAC compliance obligations remain the same for digital currency, just like traditional fiat currency. The transaction IS REGULATED, and the sanctions do APPLY. Just as sanctions are enforced through businesses, banks, and financial institutions, the U.S. government expects the same level of commitment from entities dealing in cryptocurrency to enforce and comply with the sanctions. Many sites are now freezing and/or holding transfers and asking for proof of the validity of the transactions under the sanctions. The U.S. government has become hypervigilant in targeting illegal cryptocurrency transactions because they are concerned that sanctioned countries and parties have used or are using cryptocurrency to avoid sanctions designed to isolate them and facilitate illicit activities. All hope is not lost when it comes to cryptocurrency; users must just ensure that their exchanges and activities are compliant with the sanctions.

These are key steps that cryptocurrency users and exchangers can take to protect against potential sanctions violations:

  • Crypto exchanges operating in the United States must register with FinCEN as money service businesses, license themselves in the states in which they operate, and exclude users in sanctioned jurisdictions and those on OFAC’s SDN List from transacting on the exchange.

  • Exchangers should adopt and implement Know Your Customer procedures, including sanctions screening, to identify parties trading on their exchanges, and they should employ geo-IP blocking to prohibit access by parties from sanctioned jurisdictions.

  • U.S. citizens trading in cryptocurrency should use exchanges committed to complying with U.S. sanctions requirements.

  • Exchanges operating outside the United States that want to attract U.S. users should also consider implementing such measures to exclude targets of U.S. sanctions from trading.

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