FinCEN warns of Iran using virtual currencies to bypass sanctions

What has happened?

The US Financial Crimes Enforcement Network (FinCEN) has warned that Iran might be using cryptocurrencies to evade sanctions.

What does this mean?

The regulator has released an advisory to help US financial institutions better detect "potentially illicit transactions" related to Iran.

The document forms part of a wider warning about the "Iranian regime's illicit and malign activities and attempts to exploit the financial system" and includes a section on cryptocurrencies.

According to FinCEN, since 2013, Iran's use of virtual currency has included at least $3.8 million-worth of bitcoin-denominated transactions per year.

"While the use of virtual currency in Iran is comparatively small, virtual currency is an emerging payment system that may provide potential avenues for individuals and entities to evade sanctions," the advisory said.

Although public reports state that the Central Bank of Iran has banned domestic financial institutions from using cryptocurrencies, FinCEN argues that individuals and businesses in Iran can still access cryptocurrency platforms through various means, including "Iran-located, internet-based virtual currency exchanges; US- or other third country-based virtual currency exchanges; and peer-to-peer (P2P) exchanges".

The regulator said that financial institutions should consider reviewing blockchain ledgers for "activity that may originate or terminate in Iran", adding that the international virtual currency industry in "highly dynamic" and that businesses may operate in Iran with "little notice or footprint".

Further, FinCEN said that P2P exchanges may also offer services in Iran.

"P2P exchangers may operate as unregistered foreign [money services businesses] in jurisdictions that prohibit such businesses; where virtual currency is hard to access, such as Iran; or for the purpose of evading the prohibitions or restrictions in place against such businesses or virtual currency exchanges and other similar business in some jurisdictions.”

FinCEN urged financial institutions to monitor open blockchains and P2P exchange platforms, whose activities can include "wire transactions from many disparate accounts or locations combines with transfers to or from virtual currency exchanges".

The agency reminded US individuals and institutions involved with cryptocurrencies to be aware of the 'frequently asked questions' on sanctions issued earlier this year by the Office of Foreign Assets Control, and that compliance with sanctions in respect of transactions is the same, irrespective of whether a transaction is denominated in virtual currency or not.

"Financial institutions and virtual currency providers that have [Bank Secrecy Act] and US sanctions obligations should be aware of and have appropriate systems to comply with all relevant sanctions requirements and [anti-money laundering and combating the financing of terrorism] obligations," FinCEN warned.

Next steps

If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.


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