US Can Prosecute Individual for Evading Sanctions Via Cryptocurrency, DC Magistrate Judge Rules
A federal magistrate judge at the U.S. District Court for the District of Columbia ruled in an order unsealed May 13 that the U.S. had probable cause to believe that an unnamed American citizen violated U.S. sanctions by using cryptocurrency to help various parties evade restrictions. Magistrate Judge Zia Faruqui ruled that virtual currency is traceable and that sanctions apply to virtual currency (In Re: Criminal Complaint, D.D.C. #22-00067).
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In the case, the government alleged that the unnamed citizen used an IP address to create an online payments and remittances platform in a sanctioned country. Setting up the platform entailed establishing a U.S.-based front to buy the platform's domains and ultimately transfer cryptocurrency to accounts linked to the platform. The defendant allegedly advertised their platform as a means to evade U.S. sanctions through "untraceable" cryptocurrency transactions.
However, the defendant's U.S. IP address was also linked to an account at a U.S.-based financial institution where thousands of dollars were sent and received from the sanctioned country. The defendant also had accounts with U.S. and foreign virtual currency exchanges from which bitcoin was purchased and sold, the court said. In all, the unnamed individual allegedly used the cryptocurrency exchange accounts to transfer over $10 million worth of bitcoin between the U.S. and the sanctioned country. The U.S. then filed its complaint at the D.C. District Court, arguing that the defendant conspired to violate the International Emergency Economic Powers Act.
The unsealed order establishes good cause and allows the case to proceed. For starters, Faruqui ruled that cryptocurrency is subject to the Treasury Department's Office of Foreign Assets Control's regulations. "The question is no longer whether virtual currency is here to stay (i.e., FUD) but instead whether fiat currency regulations will keep pace with frictionless and transparent payments on the blockchain," the judge said. "OFAC’s recent guidance confirmed that 'sanctions compliance obligations apply equally to transactions involving virtual currencies and those involving traditional fiat currencies.'" The judge also cited a recurring bit on NBC's sketch comedy show "Saturday Night Live" from the 1990s in which the host of a political chat show emphatically yells "Wrong!" at the guests.
Faruqui then said that the court adopts OFAC's guidance, ruling that the agency is due Chevron deference when it comes to cracking down on sanctions violations. The judge then rattled off recent sanctions enforcement actions taken by OFAC that reveal the agency's consistent practice of enforcing sanctions laws on cryptocurrency-related transactions.
"Virtual currency is traceable," the judge said. "... Yet like Jason Voorhees the myth of virtual currency’s anonymity refuses to die. ... Appearing to rely on this perceived anonymity, Defendant did not hide the Payments Platform's illegal activity. Defendant proudly stated the Payments Platform could circumvent U.S. sanctions by facilitating payments via bitcoin. ... Defendant’s transmission of virtual currency to the Sanctioned Country violated U.S. sanctions. Independently, Defendant faces liability because his transactions caused the virtual currency exchanges -- perhaps unwittingly -- to violate sanctions. These willful violations established probable cause to believe Defendant violated 18 U.S.C. § 371."