The US affiliate of cryptocurrency exchange Poloniex will pay $7.59 million to settle its civil liability for apparent violations of US sanctions on certain countries, the Treasury Department’s Office of Foreign Assets Control (OFAC) said.
OFAC’s investigation found that Poloniex LLC conducted roughly 66,000 transactions valued at more than $15 million. Between January 2014 and November 2019, the crypto trading platform violated multiple regulations, including those prohibiting US companies from doing business with individuals operating in Iran, Sudan, Syria, Cuba and the Crimea region of Ukraine.
The firm’s systems failed to analyze all data required for compliance with OFAC sanctions and therefore did not implement control measures to prevent such users of countries comprehensively sanctioned by the US government from accessing its service.
The settlement is OFAC’s latest enforcement action against a cryptocurrency company. In October 2022, Bittrex agreed to pay $24.3 million to resolve similar charges. A year earlier, crypto payment provider BitPay paid $507,375 to settle violations of sanctions rules administered by the office.
OFAC also discovered that Poloniex, which launched its operations in 2014, did not maintain an effective anti-money-laundering program until May 2015. Even after it implemented a sanctions compliance program, which reviews KYC information for new customers, existing customers were not retroactively screened in this manner.
OFAC determined the lack of appropriate due caution or care for its sanctions compliance obligations as aggravating factors. In addition, the company failed to inform the watchdog about these illegal transactions and did not voluntarily disclose the violations of US sanctions.
“As a result, customers who had self-identified before May 2015 as residing in a sanctioned jurisdiction (i.e., customers who provided an address located within a sanctioned jurisdiction to Poloniex during the KYC process at the time of account opening) were generally able to continue using Poloniex’s platform. Poloniex also began monitoring IP address data in May 2015 to detect logins from sanctioned jurisdictions. Poloniex conducted additional diligence on such logins, including contacting the owner of the relevant account, and closed certain accounts based on that diligence. Poloniex did not begin implementing a block on such IP addresses until June 2017. Poloniex implemented sanctions controls related to customers in the Crimea region of Ukraine only in August 2017,” the statement further reads.
OFAC said it could have fined Poloniex more for improper transactions. The mitigated penalty reflects the agency’s determination that it was a ‘relatively small company’, and also the remedial measures that Circle implemented when it acquired the exchange in early 2018.
Additionally, the watchdog credited Poloniex and Circle for providing “substantial cooperation” to OFAC’s investigation into the apparent violations.
Nevertheless, the settlement sends an important message to crypto businesses. OFAC itself reiterated that digital asset institutions should take a risk-based approach to sanctions compliance to detect flaws in internal controls.
