On December 13, 2023, CoinList Markets LLC (“CoinList”) agreed to pay $1,207,830 pursuant to a settlement agreement with the Office of Foreign Assets Control (“OFAC”) in connection with allegations that virtual currency exchange based in San Francisco violated OFAC's Russia policy. /Ukraine sanctions by allowing users from Crimea, an embargoed country, to open accounts on its platform.
According to OFAC compliance release, CoinList's screening procedures failed to identify 89 cases where users specified "Russia" as their country of residence but provided addresses in Crimea when opening the account. According to OFAC, “[b]Because 'Russia' was provided in the country of residence field in these cases, [CoinList’s] “Detection protocols did not recognize that ‘Crimea’ or the name of a Crimean city, provided in another data field, indicated probable residence in Crimea.” The provision of financial services to users in Crimea between April 19, 2020 and May 7, 2022 resulted in CoinList processing 989 transactions in violation of the Ukraine/Russia Related Sanctions Regulations, 31 CFR § 589.207, for a total of $1,252,280. The maximum statutory civil monetary penalty for such violations is $327,306,583.
OFAC determined that the following is aggravating factors:
- CoinList's failure to exercise due care in sanctions compliance obligations by failing to institute internal controls that would flag account owners who described themselves as residents of Crimea;
- CoinList's probable knowledge or reason to know that it was transacting on behalf of persons who are likely to be residents of Crimea; and
- resulting damage to the integrity of the political objectives of the Ukraine-Russia Related Sanctions Regulation.
OFAC determined that the following is mitigating factors:
- OFAC has not issued a Penalty Notice or a finding of violation to CoinList in the five years preceding the earliest date of the transactions that led to the violations;
- Coinlist's cooperation with OFAC's investigation into the violations;
- that violations represent a small percentage of the total transaction volume conducted by Coinlist annually; and
- Coinlist corrective measures on this matter.
In partial satisfaction of its settlement with OFAC, CoinList agreed to invest $300,000 in sanctions compliance controls, such as enhanced screening controls and additional compliance staff.
This case highlights that it is important for virtual exchanges to invest in compliance controls, specifically with respect to the integration of KYC and other relevant information into selection processes and the broader compliance function. Additionally, OFAC's enforcement action emphasizes that it is important for virtual currency exchange companies to incorporate risk-based sanctions compliance into their business functions, especially when offering financial services to a global customer base.
Brandon Mohamad contributed to this article.
