Cryptocurrency has developed an increasingly prominent role in the global economy. The perceived pseudo-anonymity of blockchain transactions and an evolving regulatory landscape has emboldened criminals to leverage cryptocurrency in attempts to evade sanctions. The Office of Foreign Assets Control (OFAC) highlights that compliance obligations apply equally to transactions involving cryptocurrencies as for those involving traditional fiat currencies.
Crypto companies can face many challenges when relying on siloed and legacy programs for sanctions management. Remaining compliant in an uncertain and evolving sanctions landscape, while managing significant volumes of false positive alerts, and relying on outdated data, watchlists, systems, and technology, could have negative consequences for your crypto company if not managed efficiently. An effective sanctions screening program, equipped to deal with the growing complexities of sanctions compliance, is essential to protect your business.
Profit Losses and Reputation Risk: The Risk of Non-Compliance
As sanctioned persons and countries become more desperate for access to the U.S. financial system, it is vital that the virtual currency industry prioritize cybersecurity and implement effective sanctions compliance controls to mitigate the risk of sanctioned persons and other actors exploiting virtual currencies to undermine U.S. foreign policy interests and national security.
-Office of Foreign Assets Control, Sanctions Compliance Guidance for the Virtual Currency Industry
Failure to comply with OFAC sanctions requirements can cause considerable harm to the integrity of your crypto company, resulting in substantial civil and regulatory penalties, reputational damage, or unsatisfactory regulatory examinations.
Seeing the Full Picture: Geolocation Tools Essential to Maintaining Sanctions Compliance
Crypto companies need solutions that show the full picture to ensure sanctions compliance, as the landscape is constantly evolving. Traditional anti-money laundering and sanctions compliance programs often fail to incorporate necessary geolocation tools, including automated IP address blocking systems. Without this essential element, crypto companies are at risk of unknowingly processing transactions from countries located on OFAC’s sanctioned country list, often resulting in penalties and reputational damage.
OFAC highlights the need for a risk-based approach to sanctions compliance to manage sanction requirements, “because there is no single compliance program or solution suitable to every circumstance or business”. OFAC highlights that an effective compliance solution for crypto companies depends on a variety of factors, including the type of business involved, size of the company, products and services offered, customers and counterparties, and geographic locations served. To ensure compliance with sanctions regulations that are constantly changing, OFAC recommends, “such compliance programs generally should include sanctions list and geographic screening and other appropriate measures as determined by the company’s unique risk profile”.
Protecting your Business: The Need for Efficient and Effective Sanctions Screening and Management
Crypto companies must go beyond simply screening on-chain digital addresses from the OFAC Specially Designated Nationals and Blocked Persons (SDN) list to remain compliant with evolving sanctions regulations. There are six key scenarios that crypto companies should establish to ensure proper sanctions compliance:
Analysis of sanctioned digital addresses (e., wallet screening)
Analysis of customer profiles (i.e., fuzzy name and identification screening)
Analysis of transaction counterparties (i.e., fiat or on-chain receivers/senders)
Analysis of customer usage/access (i.e., online, or mobile I.P. address geolocation screening)
Analysis of sanctioned jurisdictions (i.e., jurisdictional country or regional screening)
Sanctions evasion typologies (neighbouring jurisdictions, multi-hop blockchain paths)
The results of these analytics should be clear and concise to ensure your sanctions investigation team have a precise understanding of the risk of potential sanctions violations. Alert visual storytelling, such as geographic maps or pre-prepared blockchain forensic visualizations, are key tools for your team.
Verafin monitors customer transactions across both fiat and blockchain networks for potentially sanctioned or suspicious activities, presenting you with risk-rated evidence in high-quality alerts related to transactions with sanctioned entities, businesses, and blockchain addresses. With targeted sanctions screening analytics, automated watchlist updates and integrated Case Management, Verafin:
- Reduces false positive alerts
- Strengthens audits and examinations
- Quickly adapts to changing regulations
Crypto companies play an increasingly important role in preventing illicit activity – by maintaining an effective sanctions compliance program, your business can meet the growing complexities of sanctions management and prevent the funding of nefarious crimes.
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Verafin, a Nasdaq company, is the industry leader in Financial Crime Management providing a cloud-based platform for AML, Fraud Detection and investigative Case Management. An all-in-one crypto compliance offering, Verafin supports complex investigations, enables robust transaction monitoring and improves efficiency of compliance processes. Its multi-chain visual investigation tools help streamline case investigations and trace the flow of funds across both cryptocurrency and fiat networks.