OFAC “may” include virtual currency wallet addresses on SDN List
The Office of Foreign Asset Control of the Department of Treasury (OFAC) forecasted that it “may include as identifiers on the SDN List specific digital currency addresses associated with blocked persons.”
SDN stands for “Specifically Designated Nationals and Blocked Persons” and the “SDN List” is a list of persons and entities, designated by OFAC, whose “assets are blocked and U.S. persons are generally prohibited from doing business with them.” Persons and entities on the SDN List are commonly referred to as sanctioned persons or entities.
OFAC recently posted “Questions on Virtual Currency,” a section of their frequently asked questions, which indicates that OFAC may be adding virtual currency wallet addresses to the SDN List. According to OFAC, when it comes to OFAC compliance the “obligations are the same” whether operating in virtual currency or fiat. Persons or entities “are responsible for ensuring that they do not engage in unauthorized transactions prohibited by OFAC sanctions, such as dealings with blocked persons or property.” OFAC notes that “there is no single compliance program or solution suitable for every circumstance” but reiterates that there must be in place a “tailored, risk-based compliance program, which generally should include sanctions list screening and other appropriate measures.”
Perhaps most importantly, OFAC pledged to increase its regulatory presence within the existing framework as follows: “[t]o strengthen our efforts to combat the illicit use of digital currency transactions under our existing authorities, OFAC may include as identifiers on the SDN List specific digital currency addresses associated with blocked persons.”
The inclusion of wallet addresses to the SDN List could potentially prohibit virtual currency users from doing business with that wallet address as well as its direct and indirect owners. According to OFAC, “U.S. persons (and persons otherwise subject to OFAC jurisdiction) must ensure that they block the property and interests in property of persons named on OFAC’s SDN List or any entity owned in the aggregate, directly or indirectly, 50 per cent or more by one or more blocked persons, and that they do not engage in trade or other transactions with such persons.” (emphasis added). It is difficult enough to determine the ownership of a private entity “directly or indirectly” but it would be even more difficult to determine whether an entity is “indirectly” owned by the owner of a virtual currency wallet.
It remains to be seen whether OFAC will actually place any virtual currency wallet addresses on the SDN List or if this posting is more of a warning shot. If OFAC actually designates wallet addresses on the SDN List it could alter compliance and “Know Your Customer” requirements for market participants.