In recent news, the US Treasury’s Office of Foreign Assets Control (OFAC) has announced that crypto exchange Poloniex has agreed to pay a hefty sum of $7.6 million to settle claims relating to allowing users from sanctioned nations to trade digital assets on their platform. The regulator has determined this amount due to Poloniex’s offenses being “not voluntarily self-disclosed” and “non-egregious.”
Between 2014 and 2019, Poloniex was accused of processing 66,000 crypto transactions, worth more than $15.3 million, for customers in sanctioned areas despite having access to know-your-customer (KYC) information and IP address data. Addressing this issue, it’s essential to consider the fact that Poloniex only began monitoring IP addresses and gathering KYC data in 2015 and did not start blocking prohibited IP addresses until 2017.
Interestingly, Poloniex provided services to customers from Crimea, Cuba, Iran, Sudan, and Syria. All of these regions are subject to, or have experienced, comprehensive US sanctions prohibiting American businesses from operating there. In 2018, Circle Internet Financial acquired Poloniex for $400 million, and according to OFAC, Circle implemented additional sanctions and compliance measures that considerably reduced the frequency of violations.
On the other hand, some sanctions violations continued through 2018 and 2019, particularly with accounts opened by citizens of Crimea. In 2019, Poloniex was split off from Circle, becoming a standalone entity under the name of Polo Digital Assets. This new venture was backed by an Asian investment group and included Justin Sun, founder of the TRON network and advisor at Poloniex’s competitor, Huobi. However, US customers were left out of the deal, and Circle ceased services for US clients using Poloniex in late 2019.
This settlement highlights the challenges crypto businesses in the United States face concerning sanctions compliance. OFAC recommends that crypto companies, like other financial service providers, adopt a customized, risk-based sanctions compliance program.
It is worth noting that Poloniex’s settlement with OFAC is not the first of its kind. In 2021, the crypto exchange agreed to pay $10 million to settle an investigation by the Securities and Exchange Commission (SEC). The SEC accused the platform of violating investor protection rules and failing to register its operations with federal regulators. Moreover, transactions involving unregistered securities took place on the exchange from 2017 to 2019.
This serves as a reminder that the world of cryptocurrencies, though steadily gaining prominence, is not without its challenges and regulatory scrutiny. For users and businesses alike, it’s critical to remain informed about sanctioned regions and strive for compliance in all aspects of operation.