April 20, 2021

Volume XI, Number 110

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OFAC Resolution with BitPay Highlights Importance of Sanctions Compliance for All Companies Engaged in Digital Currency Transactions

On Feb. 18, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $507,375 settlement with BitPay, Inc., an Atlanta-based payment processing company that enables merchants to accept digital currency, for more than 2,100 apparent violations of U.S. economic sanctions. The settlement serves as a timely reminder to all companies engaged in digital currency transactions – whether administrators, exchangers, or technology companies and other business that accept digital currency – of the importance of maintaining risk-based sanctions compliance controls.

According to the OFAC enforcement notice, BitPay maintained a sanctions compliance program focused on screening its direct customers, i.e., merchants who accept digital currency from buyers. BitPay screened merchants against OFAC’s List of Specially Designated Nationals and Blocked Persons (the SDN List) and conducted additional due diligence to ensure that the merchants were not located in sanctioned jurisdictions, such as North Korea and Iran. But according to OFAC, BitPay failed to screen the information it obtained about the merchants’ customers, including buyers’ self-identified physical and IP addresses – which in some cases indicated that buyers were located in sanctioned jurisdictions. OFAC states that by processing transactions in these cases, BitPay enabled individuals in sanctioned jurisdictions (i.e., Crimea, Cuba, North Korea, Iran, Sudan, and Syria) to engage in roughly $129,000 worth of digital currency transactions with BitPay’s merchant customers.

Although the amount of money involved comprises a small percentage of BitPay’s overall business, BitPay could have been liable for over $600 million in fines. In agreeing to resolve the matter for a relatively modest amount, OFAC considered, among other things, that BitPay had sanctions compliance controls in place throughout the relevant time, that it trained its employees on sanctions restrictions, that it cooperated with OFAC’s investigation, and that it had agreed to implement certain changes, including blocking IP addresses that appear to originate in sanctioned jurisdictions and requiring proof of buyer identification for transactions over $3,000. Nevertheless, had BitPay disclosed the violations voluntarily, OFAC may have further reduced the fine or foregone a fine entirely.

Given the significant attention being paid to the anti-money laundering (AML) obligations of digital currency providers and exchangers, OFAC’s settlement with BitPay serves as a reminder of the equal importance of sanctions compliance in the digital currency space. And unlike the Bank Secrecy Act, which imposes AML program requirements only on those businesses defined as “financial institutions” (a category that includes digital money transmitters like BitPay), U.S. sanctions laws apply to all U.S. persons. Accordingly, all companies involved in the digital currency space, including technology companies and other business that accept digital payments, would do well to review their sanctions compliance programs, including their treatment of IP address information.

Of course, a buyer’s IP address does not always accurately reflect a customer’s true location, for example, if an individual uses Tor and/or a virtual private network (VPN) to access the internet. Nonetheless, OFAC’s settlement with BitPay sends the message that companies should, at a minimum, understand what identification and location information is available to them and tailor their risk-based compliance protocols accordingly.

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©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XI, Number 55
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About this Author

Cyril Brennan, Greenberg Traurig Law Firm, Washington DC, International Trade Law Attorney
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Cyril (Cy) Brennan focuses his practice on international trade regulation and compliance, with an emphasis on U.S. export controls and economic sanctions. Cy handles matters regarding the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), U.S. sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s anti-boycott regulations. In addition, he represents clients before the Committee on Foreign Investment in the United States (CFIUS), and advises clients...

202-533-2342
Kyle R. Freeny Shareholder Anti-money laundering issues Bank Secrecy Act Anti-corruption, Foreign Corrupt Practices Act, Asset forfeiture, Foreign Agents Registration Act FARA, Government investigations,Compliance counseling
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Kyle R. Freeny, a skilled trial attorney and former federal prosecutor for the Special Counsel’s Office and the Department of Justice (DOJ), Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), focuses her practice on white collar criminal defense, government and internal investigations, and anti-money laundering (AML) and international corruption matters.

Kyle was one of 19 prosecutors selected by Robert S. Mueller III to conduct the high-profile investigation into alleged Russian election interference, coordination between Russian officials and the Trump...

202-331-3118
David I. Miller White Collar Litigation Attorney Greenberg Traurig New York, NY
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David I. Miller, an experienced trial lawyer and former federal prosecutor, focuses his practice on white collar criminal defense, government and internal investigations, securities and commodities enforcement, related complex civil litigation, and cryptocurrency, cybersecurity, anti-money laundering, and national security matters. Previously, David served for five years as an Assistant U.S. Attorney in the Southern District of New York (S.D.N.Y.), over half that time as a member of the Securities and Commodities Fraud Task Force. He also served as a terrorism prosecutor with the...

212.801.9205
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