Crypto Anti-Money Laundering and Sanctions Compliance

24 Nov 2022, 10 mins ago

The US Treasury has recently warned the cryptocurrency industry that it must follow the U.S. Treasury Department’s anti-money laundering and sanctions regulations.

We are certainly entering an era where the sector can expect to face increased scrutiny.

Smart contracts and sanctions

This followed an 8 August 2022 U.S.Department of Treasury’s OFAC announcement that the Treasury’s Office of Foreign Assets Control (“OFAC”) had sanctioned virtual currency mixer Tornado Cash

Indeed, on 17 August 2022, Gherson’s criminal litigation, investigations and regulatory team wrote a blog entitled “Can a smart contract be sanctioned?”.

The blog described  that it had been reported by some that this was a controversial development, since sanctions had previously only been imposed against wallet addresses and centralised services, however, as the use of decentralised technology to affect the transfer of value becomes more prolific, we can certainly expect more cases like this. 

Perhaps in response to this, on 9 September 2022 the U.S Department of the Treasury released a Press Release providing answers to frequently asked questions about the imposition of sanctions.  Although from a U.S perspective, this is an interesting general read.

UK crypto sanctions compliance and reporting

UK Sanctions reporting

Meanwhile, back in the UK, Gherson’s criminal litigation, investigations and regulatory team have recently written about UK cryptoasset firms and sanctions reporting.

This followed the HM Treasury’s Office of Financial Sanctions Implementation’s (“OFSI”) 30 August 2022 Guidance “Reporting information to OFSI – what to do”, which confirms that the definition of relevant firms includes a cryptoasset exchange provider and a custodian wallet provider. 

As such, relevant firms are required to inform OFSI as soon as possible if they know or reasonably suspect a person is a designated person or has committed an offence under financial sanctions regulations.  The reporting obligation applies where the information has been received by the relevant firm in the course of carrying on their business.

In addition, relevant firms are required to report to OFSI the nature and amount or quantity of any funds or economic resources that they hold for a customer who is a designated person.

Failure to notify OFSI is an offence and could result in a penalty.

Reporting to OFSI is done via the compliance reporting form.  OFSI has published detailed guidance “Reporting information to OFSI – what to do”.

UK Sanctions compliance

In addition, Gherson’s criminal litigation, investigations and regulatory team have recently written about how to address the risk of sanctions evasion via cryptoassets.

This followed an 11 March 2022 joint statement reiterating that all UK financial services firms are expected to play their part in ensuring that sanctions are complied with. This includes firms in the cryptoasset sector.

This statement additionally served as a timely reminder that financial sanctions regulations do not differentiate between cryptoassets and other forms of assets.  Therefore, the use of cryptoassets to circumvent economic sanctions is a criminal offence under the Money Laundering Regulations (“MLRs”) and regulations made under the Sanctions and Anti-Money Laundering Act 2018.

Indeed, the use of technology to obfuscate transactions is one of the following red flags, suggesting an increased risk of sanctions evasion according to the statement:

  • Customers who are located or conducting business to or from a jurisdiction subject to sanctions, or which is on the UK’s High Risk Third Country list;
  • Transactions to or from a wallet address associated with a sanctioned entity, or a high-risk wallet address;
  • Transactions involving a cryptoasset exchange or custodian wallet provider known to have poor customer due diligence procedures or otherwise high risk; and
  • The use of tools to obfuscate the location of the customer.      


What can be said with certainly going forwards is that authorities will look to increasingly novel ways to sanction aspects of the crypto world. Those working in the compliance of this sector will need to keep a keen ear to any developments. 

This continues to be a fast developing space to watch going forwards.

Regulation and compliance

In these constantly changing times, firms that deal with cryptoassets, and additionally have exposure to firms that do, will need to carefully consider all their systems and controls to ensure that they are able to comply with all relevant AML and sanctions regulations

How Gherson can assist

Gherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML and sanctions compliance, including in situations involving cryptoassets

Additionally, the team has recently started a series on the regulation of crypto, with the aim of advising those who work in the compliance of this sector.  In addition, for those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.

Please do not hesitate to contact us for further advice, send us an e-mail, or, alternatively, follow us on Twitter, Facebook, or LinkedIn to stay up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2022