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Countries Use Cryptocurrency to Evade U.S. Sanctions

Many countries under U.S. economic sanctions are beginning to use cryptocurrency to circumvent bans and evade the global reserve currency model of the United States. Bitcoin and other cryptocurrencies are shaping up to be a formidable front in the economic war between countries such as Iran and the United States. London-based Arabic international newspaper Asharq Al-Awsat reported Iran sees the cryptocurrency Bitcoin as a way of evading U.S. sanctions impact in its country through what is known as “gray zone” schemes. Cyprus and Malta also implement such programs that are viewed as a form of organized crime in that they are utilized to mask the identities of people committing fraud and other criminal acts. China seeks to be the first leading superpower to establish a digital currency through its “Belt & Road Initiative” (BRI). The effort may leverage the blockchain component of Ethereum to enable China to trade with other BRI countries such as Russia and Iran. These countries also use cryptocurrency to evade the global reserve currency model of the United States. North Korea is looking to gain cryptocurrency technology expertise to bypass U.S. sanctions. The U.S. State Department denied Ethereum Foundation’s Mr. Virgil Griffith’s application to attend a conference in North Korea on blockchain and cryptocurrencies. Griffith participated in the meeting anyway. U.S. authorities arrested Griffiths, who is on trial for his unauthorized trip. His participation in that conference as an expert was viewed as a “technology transfer” of information on cryptocurrency and blockchain. Authorities believe Griffith’s expertise enabled North Korea to leverage the technology to advance its cryptocurrency initiative, fund its nuclear weapons program, and threaten the continental United States. Venezuela is also turning to cryptocurrencies as part of its effort to evade U.S. economic sanctions. Nicolás Maduro, politician, serving as president of Venezuela, and his associates were using a cryptocurrency wallet app to convert tax revenue from domestic airports into Bitcoin and other cryptocurrencies. These digital assets were moved to exchanges in China, Hong Kong, Russia, and Hungary to be converted and returned to Venezuela to circumvent the ban on Venezuela from using U.S. bank accounts. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is taking action against digital currency exchangers. They enable actors in sanctioned countries using digital assets in their schemes to avoid U.S. sanctions. In 2018 the department announced increase enforcement attention to digital currencies, especially where sanctions targets are implicated. Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker stated at the time, “It is vital that virtual currency exchanges, peer-to-peer exchangers, and other providers of digital currency services harden their networks against these illicit schemes” involving cryptocurrency. OFAC also published two FAQs for payment processors and technology companies. The guidance in the FAQs provides two acceptable ways to block digital currencies held by an institution on behalf of a person sanctioned by the U.S. government. One blocks each cryptocurrency wallet associated with OFAC identified numeric asset addresses. The second is a recommendation for a company to use its own designated walled to consolidate wallets containing cryptocurrency. Either way, companies are expected to retain an audit trail and report blocked digital currency to OFACE within ten business days.

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