red 
On November 28, the US Treasury’s Office of Foreign Assets Control (OFAC) took its latest enforcement action involving the crypto space. In the settlement agreement it announced, OFAC stated that US crypto exchange Kraken agreed to pay a penalty of $362,158.70 for violations of Iran sanctions that occurred between October 2015 and June 2019.
Specifically, the OFAC settlement shows that Kraken processed 826 transactions with individuals located in Iran totaling more than $1.6 million. According to the agency, Kraken implemented sanctions controls at the user onboarding stage to prevent new users in sanctioned countries from opening accounts.
This included the use of geolocation tools to identify where new users attempted to log in using Internet Protocol (IP) addresses in sanctioned jurisdictions. However, OFAC’s findings indicate that Kraken did not continue to monitor this data on an ongoing basis. Accordingly, account holders who opened their accounts outside of Iran later transacted from the country with Kraken.
The exchange self-identified and voluntarily disclosed these deficiencies to OFAC after discovering them, which OFAC considered a mitigating factor when assessing the size of the civil fine Kraken paid.
Addressing risk
Most importantly, the settlement agreement highlights the importance of compliance teams at crypto companies taking proactive steps to address sanctions risk through a comprehensive approach to risk management. Another mitigating factor OFAC considered in assessing the penalty was that Kraken voluntarily and proactively implemented compliance controls to address identified deficiencies.
For example, after identifying an ongoing tracking issue, Kraken implemented further geolocation controls to ensure detection of users from sanctioned countries. It has also implemented blockchain analytics solutions to enable sanctions monitoring and ensure staff are trained to use blockchain analytics. Furthermore, the exchange has taken steps to employ experienced and dedicated sanctions staff with the knowledge and skills necessary to ensure robust compliance with sanctions. As part of the settlement agreement, Kraken also agreed to invest an additional $100,000 in sanctions compliance systems and controls.
OFAC has previously noted the importance of these types of controls in its crypto industry guidance, and Kraken’s diligence in implementing these controls when it identified compliance gaps itself was an important factor in reducing the size of potential fines. This action underscores the importance of compliance teams taking proactive steps to ensure comprehensive sanctions compliance. Earlier this year, OFAC announced a $24 million settlement with exchange platform Bittrex for sanctions violations, the third such enforcement action brought against a crypto business.
How to stay safe
At Elliptic, our blockchain analytics solutions enable crypto exchanges and financial institutions to review crypto wallets and transactions for indications of exposure to sanctioned actors. This includes individuals and entities sanctioned by OFAC, as well as entities located in sanctioned jurisdictions such as Iran and North Korea.
Our unique holistic screening capabilities enable compliance teams to identify exposure to sanctioned actors for wallets and transactions where funds have passed through cross-chain services such as decentralized exchanges (DEX) and bridges – providing comprehensive exposure to sanctions risk.
We also provide our clients with the knowledge and skills needed to manage sanctions and other financial crime risks through a leading training and education program. Through our Elliptic Learn suite of educational offerings, compliance teams can access a range of online and instructor-led courses that enable regulated businesses to more effectively manage risk and demonstrate comprehensive training to regulatory stakeholders.
Our educational offerings also include the only university-accredited, self-directed cryptoasset compliance training available, as well as training on the use of block analysis solutions to equip compliance teams with the skill sets they need to ensure success.
Compliance with sanctions is a key element to the success of any crypto business. Contact us to learn more about how our blockchain analytics solutions and education services can enable your success. You can also download our Cryptocurrency Sanctions Compliance Guide for more tips on dealing with cryptocurrency sanctions risk.
Key takeaways
- Ensure that your company culture prioritizes proactive and robust compliance with sanctions.
- Ensure that you are using a blockchain analytics solution that enables detection of the risk of sanctions for crypto wallets and transactions.
- Make sure your compliance team has received adequate training, including the use of blockchain analytics solutions.
Sanctions Financial Services Americas
