18 Sep 23

OFAC Cryptocurrency Seizures and Forfeitures

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Last Updated on: 18th September 2023, 11:31 pm

OFAC Cryptocurrency Seizures and Forfeitures

The Office of Foreign Assets Control, or OFAC, is an agency that’s part of the U.S. Department of the Treasury. Their main job is to enforce economic and trade sanctions against certain foreign countries, groups, and people. In recent years, OFAC has started paying a lot more attention to cryptocurrencies and digital assets. They see it as a new way to enforce sanctions and seize assets. This article will give an overview of what OFAC does, important laws and policies about cryptocurrency forfeiture, major seizure cases, and what it means for the crypto industry.

What is OFAC and What Do They Do?

OFAC runs and enforces economic sanctions programs targeting specific foreign countries, organizations, and individuals. These sanctions restrict trade, financial transactions, and other dealings with the sanctioned parties. OFAC also keeps a list of Specially Designated Nationals who aren’t allowed to access the U.S. financial system.

To enforce the sanctions, OFAC has the authority to identify, freeze, and seize assets connected to sanctioned groups and people. This includes assets held by U.S. citizens and companies. In recent years, OFAC has claimed more and more power over cryptocurrencies and digital assets.

Key OFAC Policies on Cryptocurrency

Here are some of the main OFAC policies and guidance about cryptocurrency forfeiture and sanctions enforcement:

  • In 2018, OFAC updated its Framework for OFAC Compliance Commitments to say that sanctions apply to digital currencies and assets.
  • In 2019, OFAC published guidance clarifying that cryptocurrency addresses tied to blocked individuals are also considered blocked property subject to sanctions.
  • OFAC has said that exchanges, wallet providers, and other crypto companies must block access to and freeze assets linked to OFAC-sanctioned addresses and people.

These policies opened the door for OFAC to aggressively go after cryptocurrencies related to sanctions violations.

Major OFAC Cryptocurrency Seizures

Here are some of the biggest cryptocurrency seizures by OFAC:

  • In 2020, OFAC seized 113 virtual currency accounts worth over $1 billion connected to cybercriminals.
  • In August 2022, OFAC sanctioned the virtual currency mixer Tornado Cash and seized over $7 billion in cryptocurrency.
  • In November 2022, the DOJ announced the seizure of over 50,000 bitcoins worth $3.36 billion from the Silk Road dark web marketplace.

These seizures show OFAC is getting better at going after cryptocurrencies linked to sanctioned groups or illegal activity.

OFAC’s Authority to Seize Cryptocurrency

OFAC mainly uses its administrative forfeiture authority to seize cryptocurrency assets. This lets OFAC take assets worth less than $500,000 without court approval. Here’s how it works:

  1. OFAC identifies cryptocurrency connected to sanctions violations, like deals with prohibited parties or countries.
  2. OFAC issues a seizure warrant and notifies the asset owner.
  3. If no claim is filed in 30 days, OFAC can finalize the forfeiture.

For seizures over $500,000, OFAC has to get federal court approval. OFAC also partners with agencies like the DOJ and IRS to jointly seize cryptocurrency.

Criticisms of OFAC’s Cryptocurrency Seizures

OFAC’s expanding cryptocurrency seizures have faced criticism from some legal experts and crypto companies. Issues raised include:

  • Using broad powers and limited court oversight for smaller seizures.
  • Lack of transparency around what assets are targeted and why.
  • Unintended impacts on legitimate crypto users and businesses.
  • Weak due process protections for property owners.
  • Unclear guidance on sanctions rules for crypto firms.

Critics say OFAC’s policies could hurt broader innovation and growth of cryptocurrency technology. There are also worries that overreaching sanctions could push more activity into illegal uses of crypto.

OFAC Compliance Issues for Crypto Companies

OFAC has made clear that crypto exchanges, wallet providers, miners, and others have to follow U.S. sanctions laws. This creates compliance challenges like:

  • Building systems to screen transactions against OFAC’s sanctioned addresses and persons lists.
  • Freezing or denying service to sanctioned groups trying to hide their identity.
  • Adopting risk-based sanctions compliance programs.
  • Training staff to spot and report any sanctions issues.

Firms can face civil fines from OFAC for sanctions violations. So having strong compliance is crucial, even with the technical difficulties and costs involved.

The Future of OFAC Cryptocurrency Enforcement

Based on recent policies, announcements, and seizures, OFAC will likely keep expanding its oversight of cryptocurrencies.