US Courts Are Coming After Crypto Exchanges That Skirt Sanctions

Cryptocurrencies have long been seen as the Wild West of money transfers, but few online payment and money transfer platforms have been as blatant in appealing for illicit cash as one highlighted but not named in a memorandum opinion unsealed on May 13 in the US District Court in Washington, DC. The platform is apparently based in a “comprehensively sanctioned country”—likely North Korea, according to those within the crypto law space—and advertised its services as evading US financial sanctions. It was built using a US front company that facilitated the purchase of domain names, according to court records.

The platform, which was designed to sidestep financial bans aimed at crippling pariah countries, handled more than $10 million worth of bitcoin that was transferred between the United States and the sanctioned country using a US-based crypto exchange, which, the opinion implies, was not aware that it was helping users avoid sanctions.

The opinion, written by Magistrate Judge Zia Faruqui, was likely unsealed because someone has been arrested for operating the crypto platform. It all marks a shift in the way US law enforcement—and the law—handles cryptocurrencies.

“Issue One: virtual currency is untraceable? WRONG. ... Issue Two: sanctions do not apply to virtual currency? WRONG,” Faruqui concludes in his opinion, directly citing two Saturday Night Live skits parodying TV host and political commentator John McLaughlin, who was known for his direct style.

“For some time, we’ve heard a narrative that cryptocurrency could potentially be used for sanctions evasion,” says Ari Redbord, head of legal and governmental affairs at TRM Labs, which monitors crypto fraud and financial crime. “What we see here is the first time that the Department of Justice has charged a criminal case involving the use of cryptocurrency to evade sanctions.”

The decision puts crypto exchanges on notice that they can be liable for enabling users to sidestep sanctions—intentionally or not—and is a warning to those trying to evade such sanctions that law enforcement is coming for them.