Crypto exchanges are now required to report suspected sanctions breaches to UK authorities under new rules introduced amid concerns that digital currencies such as Bitcoin, Ether, and Tether, or non-fungible tokens (NFTs) are being used to evade Russian sanctions.
On August 30, the Treasury’s Office of Financial Sanctions Implementation (OFSI) updated official guidelines to specifically include "crypto assets" among the things that must be blocked if sanctions are imposed on an individual or enterprise.
According to the regulations established by the Treasury's Office of Financial Penalties Implementation, cryptocurrency exchanges will be breaking the law if they fail to report customers who are subject to sanctions.
The regulations mean that exchanges now have the same legal obligations as professionals like estate agents, accountants, lawyers, and jewelers. The breach of guidelines will mean crypto exchanges are committing a criminal offense if they fail to report customers designated for sanctions.
“It is vital to address the risk of crypto-assets being used to breach or circumvent financial sanctions,” a Treasury spokesperson stated. “These new requirements will cover firms that either record holdings of, or enable the transfer of, crypto-assets and are therefore most likely to hold relevant information.”
Financial sanctions on Russian business tycoons, politicians, and firms have been among the UK’s most prominent responses to the invasion of Ukraine.
Earlier this year in April, Binance, the cryptocurrency exchange giant, blocked the accounts of relatives of Russian politicians, including Polina Kovaleva, the stepdaughter of the foreign minister, Sergei Lavrov, and Elizaveta Peskova, the daughter of Putin’s spokesperson, Dmitry Peskov.
Employing crypto assets to bypass sanctions and shift money across the globe was already illegal in the UK under laws that cover all “economic resources”. However, the latest guidelines underline authorities’ concern regarding the new assets, which could be employed for circumventing sanctions because customers do not rely on regulated exchanges to make transactions.
Anna Bradshaw, a partner in Business Crime Department at Peters & Peters, a London law firm, supported the UK’s move by stating the new guidelines were “in line with the more general expansion of financial services and anti-financial crime regulation to the crypto sector”.
“Crypto and virtual assets are treated no differently than any other type of assets for the purposes of an asset freeze. Having said that, reliance on crypto or virtual currencies could potentially make it more difficult to detect that a sanctioned party is involved, or that it relates to sanctioned trade or other sanctioned activity – at least in time for steps to be taken to prevent it.”
