DOJ Files First Case Alleging Crypto Use In Sanctions Evasion

May 18, 2022
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The Department of Justice (DOJ) has accused a US individual of using cryptocurrency transfers to evade sanctions.

The Department of Justice (DOJ) has accused a US individual of using cryptocurrency transfers to evade sanctions.

After months of theoretical debates over whether cryptocurrencies could be used on a mass scale to evade sanctions, the DOJ has filed its first criminal case charging an individual with running a platform to circumvent sanctions measures via the use of cryptocurrencies.

According to the DOJ, the US citizen transferred more than $10m worth of bitcoin via an online payments and remittances platform, and advertised these services as ones being designed to evade US sanctions through “untraceable virtual currency transactions”.

The transfers took place in a “comprehensively sanctioned country”, which could include Russia, North Korea or Iran.

In a blog post-style written memorandum opinion, US magistrate judge Zia Faruqui refuted the belief that virtual currencies are untraceable and can circumvent sanctions.

“Issue One: virtual currency is untraceable? WRONG.”

“Issue Two: sanctions do not apply to virtual currency? WRONG.”

“Yet like Jason Voorhees the myth of virtual currency’s anonymity refuses to die.”

US law enforcement was able to uncover the identity of the defendant thanks to the collaboration of virtual currency exchanges that collected know your customer (KYC) information, email search warrant returns, banking information and shell company registration information.

This data provided sufficient information for the agency to identify the person behind the platform, as well as its US residence.

“The question is no longer whether virtual currency is here to stay (i.e., FUD) but instead whether fiat currency regulations will keep pace with frictionless and transparent payments on the blockchain,” Faruqui wrote.

Concluding that there was probable cause to believe that the defendant committed the alleged violations, the case will now proceed in the US District Court for the District of Columbia.

This is not the first time that Faruqui has handed down an opinion praising various features of cryptocurrencies.

Faruqui, who served for 12 years as a federal prosecutor in St. Louis and Washington, D.C. prosecuting cryptocurrency and darknet-related cases, wrote in January 2021: “The horror story of unhosted wallets is fiction, not fact” and “cash poses a greater challenge to law enforcement than cryptocurrency in unhosted wallets.”

The issue of Russians potentially using cryptocurrencies to evade G7 sanctions was widely discussed among lawmakers following the initial rounds of sanctions in March.

At that time, FBI director Christopher Wray told the Senate that “the Russians’ ability to circumvent the sanctions with cryptocurrency is probably highly overestimated”, while the director of cybersecurity for the National Security Council said that “the scale that Russia would need to successfully circumvent all U.S. and partners’ financial sanctions would almost certainly render cryptocurrency as an ineffective primary tool for the state".

Later on, Secretary of Treasury Janet Yellen confirmed that her office had not seen “widespread evasion of our sanctions using methods such as cryptocurrency”.

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