In a recent announcement, the United States Treasury Department’s Office of Foreign Asset Control (OFAC) revealed a $7.6-million settlement agreement with cryptocurrency exchange Poloniex. The settlement is related to over 65,000 apparent violations of multiple sanctions programs, including those involving Crimea, Cuba, Iran, Sudan, and Syria. Between January 2014 and November 2019, Poloniex allegedly facilitated more than $15 million worth of digital asset trades, deposits, and withdrawals for users in these sanctioned regions.
The OFAC’s findings indicated that Poloniex’s failure to retroactively screen users who had registered at the exchange between January 2014 and May 2015, when it established a sanctions compliance program, led to these apparent violations. Moreover, the OFAC claimed that the violations were neither “voluntarily self-disclosed” nor “egregious.”
Although Poloniex did implement efforts to identify and restrict accounts with ties to sanctioned jurisdictions, certain customers from these areas were still able to use the platform for digital asset-related transactions. It is worth mentioning that stablecoin issuer Circle acquired Poloniex in 2018. Following this acquisition, the company’s compliance measures reportedly improved considerably, including closing accounts with IP addresses operating in Crimea.
During the OFAC investigation, both Poloniex and Circle were found to have provided substantial cooperation in connection with the apparent violations. Subsequently, in 2019, Tron-founder Justin Sun and a group of investors purchased the company from Circle.
The Poloniex settlement highlights the importance of compliance in the cryptocurrency space, especially for exchanges operating across international borders. While the measures taken by the company after the Circle acquisition show a commitment to adhering to regulations, the enormous $7.6-million settlement serves as a reminder of the financial implications associated with non-compliance.
This case also underscores the challenges faced by international crypto businesses in navigating the complex regulatory waters. Comparatively, in November 2022, crypto exchange Kraken agreed to a significantly smaller settlement of $362,000 with OFAC related to apparent sanctions violations in Iran.
As the cryptocurrency industry continues to grow and mature, it is crucial for exchanges and other players in the space to prioritize regulatory compliance as a means of reducing potential risks and fostering trust within the community. Poloniex’s experience serves as a wake-up call for other companies in the industry, emphasizing the need for robust sanctions screening processes and regular reviews of existing policies to prevent potential violations.
The ever-evolving landscape of cryptocurrency regulation presents challenges but also opportunities for the industry. By remaining vigilant and proactive, companies can navigate these complexities and ensure a secure and compliant future in the fast-paced world of digital assets.