On September 10, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned three members of the Internet Research Agency (IRA), which had previously been sanctioned for interference in U.S. elections. OFAC also sanctioned four Russia-linked individuals for election interference, including a member of the Ukrainian Parliament. Identifying information for the sanctioned persons is located here.
The new sanctions are notable because OFAC added numerous affiliated cryptocurrency addresses to its Specially Designated Nationals and Blocked Persons List (SDN List), including two “privacy coins.” The three IRA actors that were designated had allegedly supported the IRA’s cryptocurrency accounts, which were used to fund interference operations globally. OFAC had previously announced in November 2018 that it would begin designating digital currency addresses affiliated with sanctioned actors.
The newly-added digital currency addresses include Zcash and Dash, two privacy coins, and this reportedly is the first instance in which OFAC has added these privacy coin addresses to its SDN List. Other digital coins that were listed in OFAC’s latest announcement include Bitcoin (XBT/BTC), Ethereum (ETH), Litecoin (LTC), and Bitcoin SV (BSV).
“Privacy coins” are cryptocurrencies designed to give users a greater degree of anonymity in their transactions compared to public ledger currencies like Bitcoin and Ethereum, making it very difficult (and oftentimes impossible) to trace transactions on the blockchain. The use of privacy coins, or other external privacy mechanisms such as mixers or tumblers, can create challenges for in-house legal and compliance departments in their efforts to trace the source of funds and perform transaction due diligence.
These new sanctions, and the addition of the privacy coin addresses to OFAC’s SDN List, demonstrate the sanctions challenges confronting cryptocurrency exchanges and other participants in the cryptocurrency space. OFAC and other governmental regulators have made cryptocurrency compliance a priority and we expect that to continue in the future.
We will continue to closely monitor developments in this space. If you have any questions or concerns about U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533) or Andrew S. Jacobson (212-574-1477) at Seward & Kissel’s Sanctions Practice Group. For questions regarding cryptocurrencies or blockchain technology, please contact Anthony Tu-Sekine (202-661-7150) at Seward & Kissel’s Blockchain & Cryptocurrency Group.