On March 11, 2022, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury (Treasury) released FAQ 1021, which explains that US persons are prohibited from engaging in or facilitating any transaction by a non-US person that would be prohibited if performed by a US person or within the US, including virtual currency (VC) transactions involving the Central Bank of the Russian Federation, National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. (see Legal Update, US Treasury Issues Releases Covering Russian Sanctions and Virtual Currency).

On March 7, 2022, Treasury's Financial Crimes Enforcement Network (FinCEN) issued an alert (FinCEN alert) advising all financial institutions to be vigilant regarding potential Russian efforts to evade expanded US sanctions and other restrictions imposed against Russia and certain Russian entities in connection with the Ukraine crisis (see FinCEN Advisory on Russian Sanctions and Virtual Currency).

OFAC FAQ 1021 addresses certain Russia-related sanctions imposed pursuant to Executive Order 14024, dated April 14, 2021, and, in particular, the application of those sanctions to dealings in VC. FAQ 1021 begins by reiterating the agency’s view that its regulations apply regardless of whether a transaction is denominated in traditional fiat currency or VC. The FAQ notes that sanctioned Russian persons may use a variety of measures to evade US sanctions, including use of VC. The FAQ offers the following examples of activities that are generally prohibited:

FAQ 1021 also notes a variety of conduct that is sanctionable under EO 14024, including, among other conduct, directly or indirectly engaging or attempting to engage in, deceptive or structured transactions or dealings to circumvent US sanctions, including through the use of digital currencies or assets, or the use of physical assets, and operating or having operated in the financial services and technology sectors of the Russian Federation economy.

FAQ 1021 specifies that OFAC is closely monitoring efforts to circumvent or violate Russia-related sanctions, including through the use of VC, and is committed to using its broad enforcement authorities to act against violations and to promote compliance.

OFAC's Specially Designated Nationals and Blocked Persons List (SDN list) is available for public use on the Treasury's website. OFAC has also developed a free search tool, the Sanctions List Search, which can conduct searches across all of the sanctions lists administered by OFAC (see Legal Update, OFAC Issues Guidance and Updated FAQs on Virtual Currency Sanctions Compliance and FinCEN Issues Updated Advisory on Ransomware).

The FinCEN alert provides examples of red flags to assist financial institutions in identifying suspected sanctions evasion activity and reminds financial institutions of their reporting obligations under the Bank Secrecy Act (BSA). FinCEN's mandate under the Anti-Money Laundering Act of 2020 (AMLA) (31 USCA §5318 et seq.) requires FinCEN to publish threat-pattern and trend information derived from Suspicious Activity Reports (SARs) submitted to FinCEN by financial institutions. The alert requests that financial institutions reference this FinCEN alert in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the following key term: "FIN-2022-RUSSIASANCTIONS."

FinCEN notes the following red-flag indicators for sanctions evasion using CVC:

FinCEN notes the following red-flag indicators for possible ransomware attacks and other cybercrime:

According to FinCEN, sanctions evasion may occur through various means, including through currently unsanctioned Russian and Belarusian banks or other financial institutions that retain at least some access to the international financial system. While FinCEN reports that large scale sanctions evasion using convertible VC (CVC) by a government such as the Russia is not necessarily practicable, CVC exchangers and administrators and other financial institutions may observe attempted or completed transactions tied to CVC wallets or other CVC activity associated with sanctioned Russian, Belarusian, and other sanctioned persons. The alert reminds financial institutions of the dangers posed by Russian-related ransomware campaigns.

According to FinCEN, all financial institutions, including those with visibility into cryptocurrency or CVC flows (such as CVC exchangers and administrators), should identify and report suspicious activity associated with potential sanctions evasion to FinCEN under SARs and conduct appropriate risk-based customer due diligence or enhanced due diligence as required. FinCEN notes that relevant information to assist with law enforcement investigations will be shared with the US Department of Justice (DOJ) international partners and task forces that are established to track and freeze the assets of Russian elites.