The US Treasury’s Office of Foreign Assets Control (OFAC) published an enforcement notice on 18 February 2021 to announce that it had settled with its second virtual asset service provider in only 2 months for violating sanctions compliance regulations, following its December settlement with BitGo.
OFAC fined digital asset payments platform and Bitcoin processor BitPay over USD 500,000 for conducting more than 2000 violations relating to sanctioned jurisdiction residents between 2013 and 2018.
BitPay allegedly enabled individuals in sanctioned jurisdictions Cuba, Sudan, Iran, North Korea, Syria, and the Ukraine Crimea region to transact with U.S. residents.
More than $129,000 in cryptocurrency was involved, making up a mere 0,04% of BitPay’s total transactions during the five year period.
Pertaining to over 2000 transactions between 2013 and 2018, OFAC claims that BitPay were aware of these violations, as it had access to its users location data and their IP addresses.
While it did perform verification checks and due diligence on merchants and screened them against blacklists, it didn’t do the same for their clients’ customers, thus failing to exercise due caution and meeting its regulatory requirements.
While the OFAC fine is nearly half a million dollars, it pales in comparison with the maximum fine it could have been of $600 million US dollars.
The OFAC case against Bitpay is nearly identical to they brought against crypto asset custody platform BitGo in December 2020, as reported by us.
OFAC did consider a few mitigating factors in the BitPay case, just as it did in the BitGo case.
They commended BitPay for taking some preventative measures updating their compliance programme in 2014, implementing better compliance controls, training employees to distinguish between U.S. residents and prohibited jurisdictional residents and launching their BitPay ID identification service to perform KYC on customers and block IP addresses in banned countries.
The OFAC’s second action against a crypto company shows that regulators mean business in 2021 and that they won’t hesitate to make examples of offenders, irrespective of the size of transgressions.
Therefore, it is increasingly clear that all crypto-related enterprises and service providers need to take a closer look at their compliance regimes, and ensure that all AML and sanctions screening requirements are met.
While the OFAC fines against BitPay and BitGo were rather insignificant due to the “non-egregious” nature of the offenses, they can be considered as worrying shots across the bow for the crypto industry who have buoyed by record growth in both crypto prices and user adoption.
If crypto companies continue to avoid playing ball with regulators, chances are good that penalties will increase to amounts that will begin to hurt and close those transgressing companies for good.