Blockchain Tracing: The U.S. Government's Newest Tool to Combat Foreign Crime – Sidley Austin LLP

On May 13, 2022, U.S. Magistrate Judge Zia M. Faruqui of the District of Columbia took the unusual step of unsealing and issuing a Memorandum Opinion captioned “In Re: Criminal Complaint” to explain the court’s conclusion that probable cause existed to authorize a federal criminal complaint against an individual for transmitting over $10 million worth of bitcoin between the United States and an Office of Foreign Assets Control–sanctioned nation, violating the International Emergency Economic Powers Act (IEEPA) and defrauding the United States, in violation of 18 U.S.C. § 371.
Although the criminal complaint remains sealed, the Memorandum Opinion states the allegations involve an individual, identified as “Defendant,” who used U.S.-based IP addresses from a U.S. residence and at least one U.S.-based online financial institution and U.S.-based virtual currency exchange to conspire to operate an online financial platform based in a comprehensively sanctioned company that advertised its design as one that could evade U.S. sanctions through untraceable virtual currency transactions.
Magistrate Judge Faruqui’s opinion is notable for three reasons:
Accordingly, parties at each stage of blockchain transactions should carefully review their sanctions compliance procedures, in light of the OFAC guidelines cited by Magistrate Judge Faruqui, to address liability and enforcement risk.
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