The Guidance comes on the heels of the September 2021 designation of a Russian virtual currency exchange for facilitating transactions on behalf of ransomware actors, and marks an attempt to counter ransomware and promote sanctions compliance in the virtual currency industry. This first-ever designation forms part of a set of actions taken by the U.S. government to counter ransomware payments, which includes, among others, the release of an updated advisory on potential sanctions risks for companies facilitating ransomware payments, which supersedes the prior ransomware advisory of October 2020. The Guidance dovetails with a more general policy review conducted by the Department of Treasury on October 18, 2021, which raises concerns that the growing prevalence of digital currencies as a payment method poses a threat to the U.S. sanctions program.
Regulator focus on virtual currency as a way of evading sanctions has increased significantly over the past two years, both in the United States and internationally. The UK Office of Financial Sanctions Implementation (OFSI) in its maritime guidance of December 2020, for example, devoted a section to the issue and made clear that crypto-assets are covered by the definition of “funds” or “economic resources.” OFSI therefore recommended that maritime actors adapt their due diligence practices to respond to the threat.
Consistent with OFAC’s existing sanctions regulations, the Guidance first provides an overview of sanctions compliance requirements and highlights that these conditions apply equally to transactions involving virtual currencies and those involving traditional financial institutions.