Earlier this month, online exchange company Kraken reached an agreement with the United States Treasury Department's Office of Foreign Assets Control (OFAC) over violations of U.S. sanctions against Cuba and Iran. This settlement marks the first time that the US government has settled a sanctions case with an exchange.
US authorities investigate Kraken
Several anonymous sources claim that Kraken is under investigation by US authorities for alleged violations of US sanctions against Iran. The exchange allegedly permitted users to trade digital tokens in Iran, despite the US's sanctions against the country.
Cryptocurrency companies have been facing increased scrutiny from regulators. These cases range from market manipulation to cases of insider trading. In recent months, the US Treasury Department has issued compliance manuals and recommended cryptocurrency companies to use geolocation tools to avoid serving customers in restricted regions. The crypto sector has also faced a series of hacking attacks, which have led to tighter supervision.
Kraken is one of the largest crypto exchanges in the United States. It offers 90 digital tokens in 190 countries. The exchange boasts a FinCEN license in the U.S. as well as a FINTRAC license in Canada.
Despite a reported federal probe, the exchange has declined to comment on any specific discussions with regulators. However, the New York Times did review internal messages from the exchange. These messages indicate that Kraken was aware of illegal transactions. It also failed to take sufficient steps to prevent recurring transactions.
In February, the exchange declined to ban Russian users from its platform. Jesse Powell, the exchange's CEO, resisted calls to freeze accounts. He claimed that these restrictions are unconstitutional, and he predicts that they will be challenged in court.
The Treasury Department has been monitoring Kraken's compliance with sanctions laws. It released a 30-page compliance manual. The department also warned in October that cryptocurrencies could be used to undermine sanctions.
The investigation into Kraken reportedly began in 2019. The Treasury Department's Office of Foreign Assets Control is investigating whether the exchange allowed users to buy and sell cryptocurrencies in Iran.
US sanctions against Iran
Earlier this year, Kraken, the second largest exchange in the United States, was under investigation by the Treasury Department's Office of Foreign Assets Control (OFAC) over alleged violations of US sanctions against Iran. The agency claimed that the exchange had violated a number of US regulations, and Kraken was expected to recoup a fine.
The fine amounted to more than $362,000 and Kraken will spend at least $100,000 on sanctions compliance controls. It will also report on any problems it discovers to regulators.
OFAC noted that the company's platform processed more than 826 transactions for Iranian users, but failed to perform an accurate analysis of the data required for compliance with sanctions rules. The agency suggested that the crypto exchange employ the appropriate software to monitor transactions and report back to OFAC.
Kraken also reportedly allowed Iranians to purchase crypto through the exchange, despite US sanctions preventing U.S.-based businesses from importing goods from Iran. It also allowed users to operate accounts in Syria and Cuba.
OFAC has been involved in a number of enforcement actions, including disrupting fundraising networks for the LeT. It has also started collecting virtual currency addresses for individuals on the SDN list. In addition, it barred Americans from using Tornado Cash, a crypto-based currency that has been used to launder billions of dollars.
The agency recommends that companies implement five essential components for a successful sanctions compliance program: internal controls, risk assessment, training, testing, and auditing. The best approach is to tailor a program to the particular needs of your business. A risk-based approach will not only detect the most important violations, but will also allow you to avoid large fines.
US sanctions against Syria
Apparently the crypto market is not the only game in town. Several startups have gotten in on the crypto action and in the process, they have introduced several new gizmos to help their customers. Among them are the mobile, desktop, and ATM based Coinbase, and the aforementioned BitPay. The latter also has a nifty little app that lets customers buy and sell virtual currencies via mobile. The app is arguably the coolest thing to come out of the crypto sphere since the dotcom boom. The mobile app is a cinch to use and if you have a bank account you can spend your cryptos there and take them out at a later date.
The app boasts several features that are aimed at enabling consumers to trade cryptos at a higher level of security. The app is available in a slew of flavors and is capable of handling more than two million transactions per hour. The app is also capable of executing a few hundred payments per second. In order to comply with regulations governing crypto payments, the app uses a secure mobile network that is not available to the general public. Several customers have used the app since its inception and have reported no issues.
US sanctions against Cuba
Despite a flurry of legal threats and lawsuits, the cryptic bitcoin exchange has survived to continue its march towards the cryptosphere. Indeed, Kraken is one of the few crypto exchanges that have maintained a level of integrity in an age of high-profile thefts and cyber attacks. The company also has some of the most stringent regulations in the industry. It is a model company, not to mention one of the few crypto exchanges with a hefty VC budget and an IPO on the way.
Although the crypto exchange eschews formal compliance with US regulations, its chief executive officer is not one to shirk the duty. In a recent press release, Kraken announced it has teamed up with the Treasury Department's Office of Foreign Assets Control (OFAC) to conduct a thorough review of the company's operations. This includes an audit of the company's security protocols, a review of customer data, and a study of the company's customer-to-customer transactions.
In fact, the company's top executive has been spotted on several occasions attending the highest level of government in Washington. The most recent high-profile interaction was a visit to the White House last month, where he met with President Trump and Vice President Pence. Other top-flight visits included Secretary of State Antony Blinken, Secretary of Defense Lloyd Austin, and Secretary of Commerce Gail Raimondo.
US sanctions against Russia
Several months after the Trump administration's initial announcement, the Treasury Department's Office of Foreign Assets Control (OFAC) began investigating whether or not crypto exchange Kraken violated U.S. sanctions.
The investigation began after a former employee filed a lawsuit against the exchange. He claimed that the exchange had unethical business practices and was violating sanctions. He said the exchange had accounts in countries such as Cuba, Syria, and Iran.
A spreadsheet reportedly showed that the exchange had at least 149 accounts in countries under sanctions. OFAC later found accounts of Kraken users in Cuba, Syria, and Iran.
In June, Kraken CEO Steven Powell posted a document to the exchange's public Slack channel, listing the names of the users and the locations of their accounts. The spreadsheet showed that 83 accounts in Cuba and 149 in Syria were linked to Kraken.
In September, the exchange agreed to pay more than $362,000 to settle civil liability. It is unclear whether the settlement was related to the US Treasury's investigation into the exchange. However, the company has not responded to an email request for comment.
The Treasury's action will effectively isolate Russia from international finance, cutting off major parts of the country's financial system from access to the U.S. dollar and the global financial system. It will also significantly restrict Russia's ability to attract capital and conduct business, and will have a long-term impact on the Russian economy.
OFAC's investigation has also focused on the exchange's interactions with Iranian nationals. The company failed to implement geolocation tools and failed to notify OFAC of transactions with Iranian nationals. It also failed to implement an automated IP address blocking system.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.