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During the last week of March, the US government had its busiest week ever when it came to imposing financial sanctions involving crypto-asset activities.
Between March 20 and 27, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) took four separate actions to sanction threat actors alleged to have engaged in activities including online disinformation campaigns, sanctions evasion, and terrorist financing. Those four actions were:
- On March 20, OFAC added Ilya Andreevich Gambashidze to its list of Specially Designated Nationals and Blocked Persons (SDN List). According to the US government, Gambashidze runs a Moscow-based company called the Social Design Agency (SDA) through which he led efforts on behalf of the Russian government to spread disinformation around the world through fake news websites and misleading social media campaigns. As part of the action, OFAC included two Tether addresses controlled by Gambashidze on the SDN list.
- On March 25OFAC has sanctioned 13 entities and two individuals for the development and operation of blockchain-based services aimed at evading sanctions targeting Russia. These include Bitpapa and NetExchange, two crypto exchanges that OFAC alleges facilitated transactions on behalf of other sanctioned entities linked to Russia. Although OFAC did not list any addresses belonging to these entities on the SDN list, Elliptic independently identified thousands of cryptoasset addresses they control.
- On March 26, OFAC sanctioned Tawfiq Muhammad Sa’id Al-Law for providing material support to a designated terrorist organization, the Lebanese group Hizballah. According to OFAC, Al-Law is a money changer of Syrian nationality based in Lebanon and provided Hizballah with crypto-asset wallets that the organization used to receive funds from the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), an Iranian proxy organization. group on the destabilization of the Middle East. OFAC also alleges that Al-Law provided financial support using crypto to a Syrian company designated by OFAC and directly to senior Hizballah officials subject to US sanctions. As part of the action, OFAC included a Tether address belonging to Al-Law on the SDN list.
- On March 27, OFAC sanctioned Gaza Now, an online fundraising campaign based in Gaza that OFAC alleges was working to raise funds on behalf of the designated terrorist organization Hamas following the October 7, 2023, attack that Hamas launched against Israel. OFAC also added to the SDN list several Bitcoin, Ethereum and Tether addresses controlled by Gaza Now. UK Office for the Implementation of Financial Sanctions (OFSI) announced sanctions against Gazi Now and its founders on the same day. The next day, March 28, the Israeli Govt identified 42 crypto addresses allegedly linked to terrorist financing.
In response to these actions, the Elliptic team worked quickly to update our dataset to ensure that our clients can identify any potential links to these blacklisted actors and their crypto addresses.
This flurry of sanctions activity underscores the importance of undertaking comprehensive sanctions compliance in the crypto space – including the importance of using robust solutions for viewing wallets and transactions which can enable detection of risks related to sanctions.
To learn more about how to solve sanctions compliance challenges in the crypto space, be sure to download Elliptic’s 2024 Guide to Cryptocurrency Sanctions Compliance.
KuCoin Accused of Violating US Anti-Money Laundering and Sanctions Laws
In another sign of the US government’s determination to crack down on illegal financing in the crypto space, on March 26, the US Department of Justice announced charges against crypto exchange KuCoin and two of its founders for alleged violations of US sanctions and anti-money laundering. Laws on Money Laundering and Combating the Financing of Terrorism (AML/CFT).
According to a statement from the Department of Justice, the US government alleges that KuCoin, since its inception in 2017, has maintained a large customer base in the US despite claiming that it does not serve the US market. Moreover, the US government alleges that KuCoin failed to maintain an adequate anti-money laundering and counter-terrorism financing and sanctions compliance program during that period, which resulted in receiving more than $5 billion and sending over $4 billion worth of illegal crypto transactions.
The indictment announced by the U.S. government is just the latest action by the U.S. in a series of enforcement actions targeting overseas crypto exchanges that the U.S. says undermine its anti-money laundering and counter-terrorist financing and sanctions efforts.
The FATF provides an overview of the global regulation of virtual assets
In an effort to step up the fight against financial crime in crypto, a global watchdog has released a list showing how countries are progressing in regulating the crypto sector.
On March 28, the Financial Action Task Force (FATF), the global standard setter on AML/CFT issues, published a report on the status of implementation of the FATF standards for virtual assets. In compiling the report, the FATF sought information from 58 jurisdictions with “materially significant VASP exposure” – that is, those jurisdictions that host large virtual asset service providers (VASPs), such as crypto exchanges, and/or where there are multiple more of the million virtual property users. Those jurisdictions were surveyed regarding their progress in implementing the key features of the FATF standards related to virtual assets. The purpose of this survey is simple: FATF is concerned that the lack of implementation of its standards around the world presents a vulnerability to financial crime, and hopes that shedding light on the status of implementation around the world will help close those gaps.
The research results are at a high level and do not include a detailed assessment of whether countries are complying with FATF standards. However, the results show where work still needs to be done at the global level to tighten oversight of the crypto sector. While the majority of jurisdictions surveyed indicated that they have conducted a risk assessment of the virtual assets sector and established a VASP licensing regime, the picture is more mixed when it comes to ongoing oversight of the sector. For example, a number of jurisdictions indicated that they have not yet taken enforcement action against non-compliant VASPs, and some have not yet fully implemented Travel Rule for Virtual Assets.
Singapore expands scope of regulatory oversight of cryptocurrencies
Regulators in Singapore have taken steps to expand their oversight of the crypto sector. On 2 April, the Monetary Authority of Singapore (MAS) announced that it has introduced legislation to expand the scope of payment services it regulates and to impose new requirements on digital payment token (DPT) service providers, such as crypto exchanges.
As a result of the amendment, new types of crypto firms will become regulated by MAS as DPT service providers – including custodians, firms that facilitate the transfer of funds in DPTs and firms that offer cross-border transfer services in DPTs, even when the funds do not pass through Singapore. According to the amendments, MAS will be granted new powers that require additional measures to prevent money laundering and terrorist financing, consumer protection and financial stability of DPT service providers.
Firms engaged in the newly covered range of DPT activities in Singapore have been given six months between April 4, 2024 and October 4, 2024, when the regulations come into effect, to submit licensing applications. Those who do not implement the changes within that period will have to cease trading activities.
These newly proposed changes highlight the importance of achieving strong compliance when attempting to do business in Singapore with MAS approval. To learn more about Singapore’s regulatory regime for cryptocurrencies, read our Singapore Country Guide.
Indonesia to create mandatory regulatory sandbox for crypto firms
Indonesian regulators have begun articulating plans on how they will approve crypto firms from January 2025 onwards. March 26 Indonesian Financial Services Authority (OJK) it was stated in the comments to the media that from January 2025, companies offering crypto services will have to operate in a regulatory sandbox environment before being approved to operate and offer a full range of services within Indonesia. The regulatory sandbox will give the OJK the opportunity to assess the suitability of a crypto firm’s products and services, as well as the sufficiency of their compliance arrangements, before offering them a license. Firms that do not meet OJK’s expectations will not be allowed to operate in Indonesia, and any firm that continues to offer services within the country without successfully passing through the sandbox will be deemed to be operating illegally.
Indonesia’s preparations to introduce a cryptoasset framework could help bring important regulatory clarity to one of the largest economies in the APAC region.
EU rules for MiCA are progressing towards finalization
One of the leading financial sector watchdogs in the European Union has made important progress in preparing for the introduction of the EU regulatory framework for markets in crypto-assets (MiCA).
On March 25, the European Securities and Markets Authority (ESMA) published its first report outlining the rules for crypto-asset service providers (CASP) under MiCA. The report sets out proposed technical guidelines for the information that CASPs will be required to obtain approval to operate under MiCA. It also clarifies other issues, such as the type of information financial institutions must submit to notify regulators of their intention to provide crypto-asset services.
ESMA’s progress in drafting its guidelines is an important step in reviving MiCA. MiCA provisions applicable to CASPs will come into effect from the end of 2024 and require CASPs to meet obligations to ensure the soundness of their platforms, comply with enhanced reporting requirements and prevent market abuse, among other measures.
To learn more about MiCA, see Elliptic’s previous analysis here.
America’s Crypto Regulation Sanctions
