U.S. Department of Justice Lays First Criminal Crypto Sanctions Charge

The U.S. Justice Department has opened its first criminal case of sanctions evasion using cryptocurrencies, according to a federal judge.

An unnamed American citizen is now being accused of sending $10M of cryptocurrency to a country sanctioned by the Office of Foreign Assets Control, an arm of the U.S. Treasury Department. Judge Zia M. Faruqui from Washington, D.C. approved a complaint lodged by the Justice Department against the defendant, who had transferred crypto assets to one of many countries facing stiff U.S. sanctions, namely Iran, Cuba, North Korea, Russia, or Syria. “The Department of Justice can and will criminally prosecute individuals and entities for failure to comply with OFAC’s regulations, including as to virtual currency,” said Faruqui.

OFAC says virtual currencies are included in recent law

OFAC released regulations in October 2020 clarifying that transactions with sanctioned countries involving digital assets are no different from transactions with those nations done in fiat currency.

The case is a first, according to Ari Redbord, who worked as a senior adviser in the Treasury Department in 2019 and 2020. “What we are seeing is that the Department of Justice is going to actively go after actors that attempt to use cryptocurrency, but also that it is hard to use cryptocurrency to evade sanctions,” he said.

Crypto not as anonymous as you think

Prior to this ruling, two people were arrested by the DOJ for conspiracy to launder bitcoin stolen in a hack of Bitfinex, a crypto exchange in Hong Kong. In both cases, bitcoin’s immutability and pseudonymous nature have proven a fatal flaw in the perpetrators’ armory. In the Bitfinex case, law enforcement tracked most of the laundered funds to a crypto wallet, “wallet 1CGA4s,” using blockchain analytics and then completed the puzzle of linking persons to the wallet through the shutdown of a “dark net” site called AlphaBay in 2017, a site through which the funds were laundered. “Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” the deputy attorney-general involved in the case said.

In this case of sanctions evasion, law enforcement again used blockchain analytics tools which have evolved since the Bitfinex saga to track the accused’s transactions. They then subpoenaed a U.S.-based cryptocurrency exchange, an overseas exchange, and a traditional bank in the U.S. to collate information regarding their mutual client. Internet Protocol (IP) addresses used to access both exchanges led law enforcement to the accused’s home. An email search warrant and shell company registration information completed the picture.

They also discovered that the receiving accounts on both exchanges were accessed from foreign accounts in sanctioned countries.

“Virtual currency is untraceable? WRONG,” said the judge in a nine-page advisory document. He concluded his opinion by saying that there was a probability that the virtual money transmitted overseas to sanctioned jurisdictions was a criminal act, with the perpetrator potentially responsible for involving two crypto exchanges in evading sanctions.

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