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OFAC Settles with Digital Asset Platform Poloniex for Violations of Multiple Sanctions Programs
Practical Law Legal Update w-039-3641 (Approx. 5 pages)
OFAC Settles with Digital Asset Platform Poloniex for Violations of Multiple Sanctions Programs
by Practical Law Finance
| Published on 04 May 2023 • USA (National/Federal) |
The US Department of the Treasury's Office of Foreign Assets Control (OFAC) settled charges against virtual currency exchange Poloniex, LLC for apparent violations of US economic sanctions programs.
On May 1, 2023, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) issued an enforcement release announcing the settlement of charges against Massachusetts-based virtual currency (VC) exchange Poloniex, LLC (Poloniex), under which Poloniex agreed to pay $7,591,630 for processing transactions totaling $15,335,349 between January 2014 and November 2019 in apparent violation of US economic sanctions against Crimea, Cuba, Iran, Sudan, and Syria. The settlement amount reflects OFAC’s determination that Poloniex’s apparent violations were not voluntarily self-disclosed but were not egregious.
According to the enforcement release, Poloniex began operations in January 2014 by offering an online digital assets trading and settlement platform (Poloniex trading platform) that allowed customers to fund their accounts and conduct trading activity. In May 2015, Poloniex implemented a sanctions compliance program that provided for a review of know your customer (KYC) information for new customers in jurisdictions subject to comprehensive OFAC sanctions, however, existing customers were not retroactively screened in this manner. As a result, customers who had self-identified before May 2015 as residing in a sanctioned jurisdiction were generally able to continue using the Poloniex trading platform.
Also in May 2015, Poloniex began monitoring IP address data to detect logins from sanctioned jurisdictions. Poloniex did not begin implementing a block on such IP addresses until June 2017 and did not implement sanctions controls related to customers in the Crimea region of Ukraine until August 2017. OFAC observed that the controls Poloniex introduced by late 2017 began to substantially reduce the rate of additional apparent violations.
Circle Internet Financial Limited (Circle) acquired Poloniex in February 2018 and implemented additional internal sanctions compliance controls that significantly reduced the rate of additional apparent violations. Poloniex operated the Poloniex trading platform until it was sold to a third party in November 2019. Poloniex currently has no business operations and no employees.
The Poloniex settlement is OFAC’s latest enforcement action against a cryptocurrency company:
- In March 2023, virtual currency exchange Uphold HQ agreed to pay $72,230.32 to resolve similar OFAC charges (see Legal Update, OFAC Settles with Digital Asset Platform Uphold HQ for Violations of Multiple Sanctions Programs).
- In October 2022, virtual currency exchange Bittrex agreed to pay OFAC $24.3 million to settle sanctions violations (see Legal Update, OFAC and FinCEN Settle Charges Against Virtual Currency Exchange Bittrex, Inc.).
- In February 2021, crypto payment provider BitPay paid $507,375 OFAC to settle sanctions violations (see Legal Update, OFAC Settles with Digital Currency Payment Processor BitPay for Violations of Sanctions Programs).