[co-author: Brandon Mohamad*]

On December 13, 2023, CoinList Markets LLC (“CoinList”) agreed to pay $1,207,830 pursuant to a settlement agreement with the Office of Foreign Assets Controls (“OFAC”) in connection with allegations that the San Francisco based virtual currency exchange violated OFAC’s Russia/Ukraine sanctions by allowing users in Crimea, an embargoed country, to open accounts on its platform.

According to OFAC’s enforcement release, CoinList’s screening procedures failed to identify 89 instances where users specified “Russia” as their country of residence but provided addresses in Crimea upon account opening. Per OFAC, “[b]ecause ‘Russia’ was provided in the country-of-residence field in these instances, [CoinList’s] screening protocols failed to recognize that ‘Crimea’ or a city name in Crimea, provided in another data field, indicated likely residence in Crimea.” The provision of financial services to users in Crimea between April 19, 2020 and May 7, 2022 resulted in CoinList processing 989 transactions in violation of the Ukraine/Russia-Related Sanctions Regulations, 31 C.F.R. § 589.207, totaling $1,252,280. The statutory maximum civil monetary penalty for such violations is $327,306,583.

OFAC determined the following to be aggravating factors:

1. CoinList’s failure to exercise due care for sanction compliance obligations by failing to institute internal controls that would flag account owners who described themselves as residents of Crimea;
2. CoinList’s likely knowledge or reason to know that it was conducting transactions on behalf of persons that are likely residents of Crimea; and
3. resulting harm to the integrity of the policy objectives of the Ukraine/Russia-Related Sanctions Regulations.

OFAC determined the following to be mitigating factors:

1. OFAC has not issued a Penalty Notice or Finding of Violation to CoinList in the five years preceding the earliest date of the transactions that led to the violations;
2. Coinlist’s cooperation with OFAC’s investigation into the violations;
3. that the violations represent a small percentage of the total volume of transactions conducted by Coinlist annually; and
4. Coinlist’s remedial measures in this matter.

In partial satisfaction of its settlement with OFAC, CoinList has agreed to invest $300,000 towards sanctions compliance controls, such as enhanced screening controls and additional compliance staff.

This case highlights that it is important for virtual currency exchanges to invest in compliance controls, specifically with regard to the integration of KYC and other screening processes. OFAC’s latest enforcement action emphasizes that it is important for virtual currency businesses to incorporate risk-based sanctions compliance into their business functions, especially when they offer financial services to a global customer base.

*Brandon Mohamad is a law clerk in the firm’s New York office.