The U.S. Treasury’s Office of Foreign Assets Control (OFAC) recently announced a settlement with the cryptocurrency exchange CoinList for alleged violations of sanctions related to Russia and Ukraine. This settlement has raised several concerns and highlights the need for robust compliance procedures in the crypto industry.
Over a two-year period ending in May 2022, CoinList processed 989 transactions worth $1.25 million from users residing in Crimea, a disputed region of Ukraine that was annexed by Russia in 2014. OFAC deemed this an “apparent violation” of its sanctions and imposed a settlement on CoinList.
A major issue highlighted in the OFAC announcement was CoinList’s screening procedures. Despite having compliance procedures in place, the exchange failed to properly identify users who provided a different address from their claimed country of residence. This lapse allowed users to select Russia as their country of residence but provide an address in Crimea, circumventing the sanctions.
While the violations were concerning, OFAC noted several mitigating factors that led to the settlement rather than a more severe penalty. CoinList had not received any prior OFAC notices in the five years leading up to the violations, indicating a generally compliant track record. Additionally, the amount involved in the violations was relatively small compared to the total transaction volume, and CoinList cooperated with OFAC’s investigations. The exchange also took remedial measures to address the issue.
The Settled Amount
The settlement amount of approximately $1.2 million appears to be significantly less than the total value of the violating transactions. CoinList handled $1,252,280 but will only pay a fine of $1,207,830. Moreover, OFAC will suspend $300,000 of the settlement amount after CoinList fulfills its compliance commitments. This raises questions about the calculation of the settlement and whether it adequately reflects the seriousness of the violations.
It is worth noting that the settlement amount is just a fraction of the maximum civil monetary penalty that could have been imposed on CoinList, which stands at $327 million. Additionally, the settlement amount is lower than the base civil monetary penalty recommended under OFAC guidelines, which is $3 million. OFAC states that the lower settlement amount reflects the non-egregious nature of CoinList’s actions and the lack of voluntary self-disclosure.
CoinList is a relatively minor exchange, handling just $350,000 in volume in the past 24 hours. However, this settlement serves as a reminder to the entire crypto industry of the importance of robust compliance procedures. As cryptocurrencies gain wider adoption, regulators are increasingly scrutinizing the sector for potential violations of financial regulations and sanctions.
The OFAC settlement with CoinList underscores the need for cryptocurrency exchanges to implement thorough screening procedures and ensure strict compliance with sanctions. Furthermore, the settlement amount raises questions about the consistency and fairness of penalties within the crypto industry. As regulators continue to address the challenges posed by cryptocurrencies, exchanges must prioritize compliance to foster a trusted and regulated ecosystem.
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