The U.S. Treasury’s Office of Foreign Assets Control (OFAC) recently reached a settlement with cryptocurrency exchange CoinList regarding violations of sanctions related to Russia and Ukraine. Over a two-year period, CoinList processed 989 transactions worth $1.25 million from users residing in Crimea, a disputed region that was annexed by Russia in 2014. OFAC deemed this to be an “apparent violation” as it goes against the imposed sanctions.
CoinList had compliance procedures in place during the relevant period, but its screening procedures failed to identify users who declared themselves as residents of a non-sanctioned country but provided an address in Crimea. Some users chose Russia as their country of residence but provided a Crimea address, leading to the violation. Although CoinList did not receive any notices from OFAC in the past five years, the agency determined that their procedures were insufficient.
OFAC listed several factors that influenced the settlement decision. CoinList cooperated with OFAC’s investigations and took remedial measures to prevent future violations. Additionally, the amount involved in the violations represented a small percentage of all transactions processed by CoinList. The agency settled with CoinList for approximately $1.2 million, which is $44,450 less than the total amount of the violating transactions. Furthermore, $300,000 of the settlement amount will be suspended once CoinList fulfills its compliance commitments. CoinList is obligated to invest that amount in additional sanctions compliance controls as part of the settlement agreement.
The settlement amount is considerably lower than the maximum civil monetary penalty of $327 million and the $3 million base civil monetary penalty recommended by OFAC guidelines. OFAC explained that the reduced settlement amount reflects the non-egregious nature of CoinList’s actions and the lack of voluntary self-disclosure. While the fine is significant for CoinList, it is important to note that it is a minor exchange, handling just $350,000 in volume over the past 24 hours.
The settlement between OFAC and CoinList highlights the importance of compliance procedures and thorough screening processes for cryptocurrency exchanges, especially when handling transactions from regions under international sanctions. CoinList’s failure to recognize and prevent transactions from users with Crimea addresses led to an “apparent violation” of the sanctions related to Russia and Ukraine. However, the mitigating factors considered by OFAC, including CoinList’s cooperation, remedial measures, and the relative insignificance of the violating transactions, resulted in a reduced settlement amount. This case serves as a reminder to all crypto exchanges to strengthen their compliance measures to avoid potential violations and penalties from regulatory authorities.