On February 25, 2022, NYDFS issued industry guidance reminding NYDFS-regulated entities to fully comply with US sanctions on Russia, as well as New York state and federal laws and regulations, highlighting concerns related to virtual currency (VC). NYDFS notes in the guidance that the Ukraine crisis has significantly increased the risk that businesses engaged in VC transfers may be used to evade sanctions imposed on Russian individuals and entities.

NYDFS recommends that regulated entities take specific steps, outlined in the guidance, including review and implementation of practices recommended for regulated entities in its June 2021 ransomware guidance, which sets out key controls that reduce the risk of destructive cyber-attacks. NYDFS recommends in the guidance that each regulated entity have in place policies, procedures, and processes, as well as necessary internal controls with appropriate training, risk assessment, testing, and auditing against its risk profile.

According to NYDFS, all regulated entities engaged in VC business activity, including BitLicensees under the New York State BitLicense program, must have in place tailored policies, procedures, and processes to protect against the unique risks that VC presents (see Practice Note, NYDFS Virtual Currency BitLicense Framework: Overview).

The guidance recommends that NYDFS-regulated entities engaged in VC activity also implement existing NYDFS guidance related to sanctions compliance under NYDFS VC regulations (NY VC regulations) (23 NYCRR pt. 200) and federal guidance under the OFAC Sanctions Compliance Guidance for the Virtual Currency Industry. The guidance also reminds NYDFS-regulated entities that they must adhere to the US Department of the Treasury's Office of Foreign Assets Control (OFAC) orders and guidance, which are accessible on the Treasury website, along with sanctioned persons and entities identified on OFAC's Specially Designated Nationals (SDN) List. NYDFS also notes that all US persons, including New York regulated entities, are prohibited from engaging in any financial transactions with persons on the SDN List, unless OFAC has authorized otherwise.

NYDFS also recommends in the guidance that regulated entities pay special attention to the effectiveness of VC-specific control measures including sanctions lists, geographic screening, and any other measures relevant to each entity's specific risk profile. Examples provided by NYDFS of VC-specific internal controls include:

On March 2, 2022, NYDFS and New York Governor Kathy Hochul issued a joint announcement describing additional actions being taken to strengthen NYDFS for the enforcement of sanctions against Russia, including the expedited procurement of additional blockchain analytics technology for NYDFS to bolster its ability to detect exposure among NYDFS-licensed VC businesses to Russian individuals, banks, and other entities subject to US sanctions on Russia. NYDFS specifically notes in the announcement that leveraging purpose-built technologies and service providers for VC protects the financial system from illicit activity including money laundering, terrorist financing, and ransomware activity.

For additional information on US economic sanctions and crypto/digital assets, see: