regulation

It’s time for the feds to define digital commodities

Europe will leave the United States behind unless lawmakers act to provide clear regulatory definitions for cryptocurrencies.

This month, the European Union (EU) agreed on the text for a unified licensing regime for cryptocurrency exchanges to operate across the EU bloc as part of its Markets in Crypto Assets Regulation (MiCA). The United States — despite being a traditional global leader in legal frameworks for technological innovation — has not provided that same regulatory clarity. 

National cryptocurrency exchanges in the U.S. are regulated at the state level through a patchwork of money transmission laws that overburden companies while under-protecting consumers. In our view, many digital tokens are properly characterized as digital commodities rather than securities. Yet, a unified federal regime for cryptocurrency exchanges listing digital commodities does not exist.

To create one, Congress must pass legislation that clearly defines “digital commodity” and creates jurisdiction for the Commodities Futures Trading Commission (CFTC) to supervise national digital commodities exchanges. Recent bipartisan bills addressing the topic suggest that this achievement may be within reach.

Don’t let a thousand flowers bloom at the state level

The individual states, rather than the federal government, are the primary regulators of cryptocurrency exchanges and other online payment providers under the rubric of money transmitters — a category of businesses that traditionally contemplate money wire providers with brick-and-mortar locations in the state.

These laws are aimed at ensuring that money transmitters do not lose, steal or misdirect a customer’s money and impose penalties on those who do.

Related: Biden‘s anemic crypto framework offered nothing new

Because cryptocurrency exchanges have customers across the country, they must understand and abide by the unique money transmission statute of every state.

Letting a thousand flowers bloom in “state laboratories of experimentation” may spur legal innovation in some contexts, but it is a poor fit with cross-border networked goods like money transmission. As a result, state-by-state licensing of modern money transmitters is inefficient, burdensome and under-protective.

More importantly, money transmission laws are not designed to protect consumers from market manipulation in spot trading of speculative digital assets among millions of people as occurs on cryptocurrency exchanges.

In that regard, the Securities and Exchange Commission has indicated that exchanges listing digital securities should be treated as national securities exchanges, which would bring them under the investor protection regime of the securities laws.

Related: Sen. Lummis: My proposal with Sen. Gillibrand empowers the SEC to protect consumers

However, the question of whether tokens currently listed on domestic exchanges are securities remains unanswered and is vigorously contested in the courts. Coinbase insists that it does not list securities — end of story.

Tokens that are not securities would appear to fall under the jurisdiction of the CFTC as commodities. However, the CFTC’s supervisory authority extends only to derivative markets for commodity tokens and not to spot markets, including exchanges, where it has only investigative and policing powers.

Using a comprehensive definition of “digital commodity,” Congress can create jurisdiction for the CFTC to supervise spot markets and address market concerns — such as investor disclosures, market transparency, fraud, manipulation and insider trading — present on exchanges. At the same time, it can establish unified licensing rules relating to the role of exchanges as custodians and payment providers.

A unified federal regime to rule them all

With legislators from both parties taking up federal crypto regulation, the time is ripe for Congress to act. We believe that a federal “digital commodity” regime that, among other things, governs domestic cryptocurrency exchanges should accomplish at least three major goals.

First, it must clearly disentangle a “digital commodity” from a security by making clear that while an investment scheme involving digital assets (usually the initial sale) triggers the application of the securities laws, the object of that scheme is more often a digital commodity rather than a security. That distinction underscores the novelty of blockchain technology: that tokens are intended to outlast their issuer and to be traded among the community of users of the blockchain outside any initial investment scheme.

Distinguishing digital commodities from securities in this way is not only correct as a matter of securities law but is also critical for maintaining a sustainable blockchain ecosystem in the United States. Treating parties engaged in standard commercial transactions involving tokens as broker-dealers transacting in securities would chill user growth and lead to the de-listing of many popular tokens like Axie Infinity (AXS) from Coinbase. The Gillibrand-Lummis bill is one draft proposal pending before Congress in which the text purports to disentangle “ancillary assets” from their investment schemes. This conceptual distinction is a step in the right direction.

Related: Federal regulators are preparing to pass judgment on Ethereum

Second, a CFTC-supervised regime of digital commodities exchanges should provide meaningful consumer protections appropriate for cryptocurrency exchanges. While treating tokens as securities and restricting them from flowing on the blockchain and trading on the secondary market in the United States would be fatal, failing to clearly and adequately address market abuses and manipulation in an industry that was valued at $3 trillion last year is similarly unacceptable. In this regard, the EU’s MiCA could be instructive.

Third and finally, any new digital commodities regime must not unduly burden industry actors and respect their constitutional rights. In August, Senate leaders introduced the bipartisan Digital Commodities Consumer Protection Act of 2022, which aims to regulate cryptocurrency exchanges as CFTC-supervised commodities brokers, dealers, custodians and trading facilities. While this renewed attention from lawmakers was welcome, it raised fresh concerns about overreach and unintended consequences on constitutionally protected activity (e.g., publishing software and relaying transaction messages) and on persons who are merely buying and selling cryptocurrencies on their own accounts.

The appearance of ambitious digital asset legislation, such as MiCA, gives the United States and its domestic industry the opportunity to learn from legal approaches in other countries before they become the standard globally. (MiCA will not take effect until 2024.) It is also a reminder that the maturing blockchain industry is driving legal innovation in other markets. On the critical topic of regulating digital commodities exchanges, the United States has not been left in the dust, at least not yet, but it is undeniably playing catch-up.

Chen Li is the CEO of Youbi Capital, a digital asset VC and accelerator.
Ivo Entchev is a blockchain attorney and legal adviser to Youbi.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

US lawmaker says crypto regulation from SEC is ‘needed now’

Senator Hickenlooper requested the SEC engage with the public by opening a “notice-and-comment period” to develop rules and regulations applicable to crypto.

John Hickenlooper, a United States Senator representing Colorado, has penned a letter to Gary Gensler urging the Securities and Exchange Commission chair to establish “clear rules” for the crypto market.

In an Oct. 13 letter, Hickenlooper called on the SEC to take action on regulatory issues including identifying the cryptocurrencies that will be considered sasecurities, establishing registration guidelines for trading platforms, and “determining what disclosures are necessary for investors to be properly informed.” According to the senator, the lack of a coordinated regulatory framework from the government has led to uneven enforcement, while the SEC is the agency “well positioned to offer regulatory guidance.”

“Given the complexity of these issues, and recognizing that some digital assets are securities, others may be commodities, and others may [sic] subject to a completely different regulatory regime, a formal regulatory process is needed now,” said the Colorado senator. “This will significantly improve policy development and allow the SEC to collect views and understand concerns.”

Hickenlooper requested the SEC engage with the public by opening a “notice-and-comment period” to develop rules and regulations applicable to crypto. He offered to work with the regulatory body to build such a framework, though his committee assignments for the current meeting of Congress were limited to commerce, small business, energy and natural resources, and health, education, labor and pensions.

Related: Colorado is now accepting tax payments in cryptocurrency, as Gov. Polis promised

During his time as governor of Colorado from 2011 to 2019, Hickenlooper established the Council for the Advancement of Blockchain Technology, tasked with creating a “comprehensive legal framework” to support the technology. In 2019 following Hickenlooper’s departure, Governor Jared Polis didn’t renew the order to continue operating the council.

UK gov’t introduces bill to digitize trade documents — Potentially traced using blockchain

The Lord Privy Seal of the U.K.’s House of Lords introduced the bill, which, ironically, was “ordered to be printed” following the first reading on Oct. 12.

Members of the United Kingdom’s House of Lords have introduced legislation aimed at eliminating the need for paper trade documents, increasing the likelihood of using blockchain technology to trace records.

In an Oct. 12 announcement, MP Michelle Donelan and the U.K. Department for Digital, Culture, Media and Sport said the Electronic Trade Documents Bill had been introduced in Parliament. The legislation proposed removing “needless paperwork and bureaucracy” by making digital documentation legally recognized for trade.

“Electronic trade documents also increase security and compliance by making it easier to trace records — for instance, through the use of blockchain and distributed ledger technology,” said the government, citing the World Economic Forum. “International trade still relies to a large extent on a special category of trade document which is dependent on being physically possessed by a person, and transferred over to another person.”

According to Donelan and the digital department, the bill would reduce carbon emissions related to documentation by at least 10% and cut down on processing time — the U.K. has roughly 28.5 billion paper trade documents on a daily basis. If approved, the legislation would allow businesses to provide electronic versions of documents including promissory notes, warehouse receipts, cargo insurance certificates and delivery orders from ships.

The Lord Privy Seal of the U.K.’s House of Lords introduced the bill, which, ironically, was “ordered to be printed” following the first reading.

Related: UK gov’t introduces bill aimed at empowering authorities’ to ‘seize, freeze and recover’ crypto

Under Prime Minister Liz Truss, the U.K. government’s plans for the economy seem uncertain following a now-scrapped tax cut plan that sent the value of the British pound crashing. The prime minister, who took office in September prior to Queen Elizabeth II’s death, previously said the U.K. “should welcome cryptocurrencies in a way that doesn’t constrain their potential.”

Many crypto asset activities pose ‘novel risks‘ to banks, says Fed vice chair for supervision

Michael Barr suggested that financial institutions engage with U.S. regulators to ensure “safe, sound, and legally permissible” activities regarding the use cases of innovative technologies.

Michael Barr, the vice chair for supervision for the United States Federal Reserve, warned banks of the potential risks of crypto-related activities, suggesting crypto service providers be subject to similar regulations as traditional financial institutions. 

In written remarks prepared for an Oct. 12 speech at D.C. Fintech Week, Barr seemed to encourage banks to explore issuing tokens on distributed ledger networks, but “only in a controlled and limited manner.” The Fed vice chair for supervision suggested that financial institutions engage with U.S. regulators to ensure “safe, sound, and legally permissible” activities regarding the use cases of innovative technologies like crypto and stablecoins.

“The [Fed] is working with our colleagues at the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to ensure that crypto-asset-related activities banks may become involved in are well regulated and supervised, to protect both customers and the financial system,” said Barr. “Many of these activities pose novel risks, and it is important for banks to ensure that any crypto-asset-related activities they conduct are legally permissible and that banks have appropriate measures in place to manage those risks.”

Barr added that the Fed was “working with other regulatory agencies” on a framework for stablecoins, claiming they were more likely to “grow into money substitutes and become a viable means to pay for transactions” as opposed to crypto assets. His remarks followed many lawmakers and regulators proposing solutions to address stablecoins. Lawmakers have drafted legislation calling for a ban on algorithmic stablecoins, and Treasury Secretary Janet Yellen said in May that a “consistent federal framework” on stablecoins would be “highly appropriate.”

“Congress should take action to provide a strong federal framework for prudential oversight, and regulators must also use existing authorities,” said Barr.

Related: Basel Committee: Banks worldwide reportedly own 9.4 billion euros in crypto assets

U.S. Bank, one of the largest retail banks in the United States, announced in October 2021 that it launched a cryptocurrency custody service for institutional investors, one of the first major banks in the U.S. to do so. BNY Mellon followed in October 2022, announcing the launch of a digital custody platform for select clients’ Ether (ETH) and Bitcoin (BTC) holdings.

Coin Center files lawsuit against US Treasury over Tornado Cash sanctions

The advocacy group alleged OFAC “exceeded their statutory authority” in sanctioning Tornado Cash because the mixer was a “privacy tool beyond the control of anyone.”

United States-based crypto policy advocacy group Coin Center has followed through with its intention to take the Treasury Department’s Office of Foreign Asset Control, or OFAC, to court over sanctioning cryptocurrency mixer Tornado Cash.

In an Oct. 12 filing in the U.S. District Court for the Northern District of Florida, lawyers for Coin Center as well as crypto investor David Hoffman, an anonymous human-rights advocate known only as John Doe and software developer Patrick O’Sullivan filed a complaint against OFAC, Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki. The complaint alleged that sanctioning Tornado Cash was “unprecedented and unlawful,” in part, due to privacy concerns over crypto transactions.

“If a user doesn’t take proactive steps to protect his privacy, the ledger’s transparency allows strangers to track his private associations and stalk his intimate relations,” said the filing. “It invites publicization of and retaliation for his private contributions to unpopular causes. And it allows anyone to see whether he has a lot of assets, which would put a target on his back.”

The plaintiffs added:

“As a result of the Biden Administration’s action, Americans who use Tornado Cash to protect their privacy while using their own assets are criminals. Additionally, their receipt of any asset through Tornado Cash, even one from a stranger that they did not solicit, is a federal crime. And their use of Tornado Cash to protect their expressive activities is criminal as well.”

Coin Center alleged Yellen, Gacki and OFAC “exceeded their statutory authority” in adding the crypto mixer to its list of sanctioned entities because Tornado Cash was a “privacy tool beyond the control of anyone.” The plaintiffs claimed OFAC “defied its own rules on the books” in imposing the sanctions in addition to violating the constitutional rights of users whose only intent was achieving some measure of privacy.

“They respectfully request that this Court hold unlawful, set aside, and permanently enjoin the enforcement of the criminalization of Tornado Cash,” said the complaint.

Among Coin Center’s reasons for the court to overrule the sanctions included donors wishing to keep their transactions private, claiming having Tornado Cash sanctioned means they are “less likely to contribute.” O’Sullivan and Hoffman, public figures in the Ethereum ecosystem, used the mixer as a means “to protect himself and his family” from the public tracking his funds as well as to avoid “potential civil and criminal liability” from receiving unsolicited tokens, respectively.

Doe, though living in the United States, has donated in crypto to pro-Ukraine causes amid the country’s war with Russia. He claimed being cut off from a privacy tool would make it more likely for Russian agents to “learn about his pro-Ukrainian activities,” potentially putting his livelihood at risk.

Coin Center’s legal team sought for the court to set aside Tornado Cash’s designation as an OFAC Specially Designated National with a “declaration that the criminalization of Tornado Cash is null, void, and with no force or effect.” In addition, they requested compensation for attorneys’ fees and other costs related to the case as well as “any other relief that the Court deems just and proper.”

OFAC added Tornado Cash as well as 44 USD Coin (USDC) and Ether (ETH) addresses connected to the mixer to its list of Specially Designated Nationals on Aug. 8. On Aug. 12, Dutch authorities reported they had arrested Tornado Cash developer Alexey Pertsev, claiming he had facilitated illicit transactions and money laundering through the mixer. TheTreasury also later clarified that publishing the controversial mixer’s code would not be a violation of U.S. sanctions

Related: Tornado Cash is the latest chapter in the war against encryption

Coin Center’s lawsuit followed crypto investors backed by Coinbase suing the Treasury Department in September, claiming OFAC’s sanctioning of Tornado Cash was “not in accordance with law.” Coinbase CEO Brian Armstrong argued the Treasury’s actions exceeded its authority, and would “harm innocent people, remove privacy and security options for crypto users, and stifle innovation.”

Senator Warren leads the charge against energy consumption claims on Texas crypto miners

According to a letter penned by seven U.S. lawmakers, ERCOT was “intimately connected” with the growth of crypto mining in Texas.

Massachusetts Senator Elizabeth Warren and a group of six other U.S. lawmakers have requested information from the head of the Electric Reliability Council of Texas, or ERCOT, on the energy usage and potential environmental impact of crypto miners.

In an Oct. 12 letter, Senators Elizabeth Warren, Sheldon Whitehouse and Edward Markey and Representatives Al Green, Katie Porter, Jared Huffman and Rashida Tlaib requested ERCOT CEO Pablo Vegas provide details on the impact Texas crypto mining firms have had on the stability of the state’s energy grid, climate change and subsidies given to companies. According to the letter, the U.S. lawmakers claimed crypto miners were “flooding” into Texas due to the state’s loose regulations.

“Texas has ‘become one of the go-to locations for crypto entrepreneurs,’ with active lobbying of the government by the Texas Blockchain Council, and crypto CEOs and state politicians alike vowing to make the state the ‘Bitcoin capital of the world,’ ‘the Citadel for Bitcoin,’ and ‘the center of the universe for bitcoin and crypto,’” said the letter, citing various reports, including from Cointelegraph. “ERCOT is intimately connected with this growth in cryptomining.”

The U.S. lawmakers cited reports suggesting that crypto miners used “substantial amounts of electricity” that resulted in “substantial amounts of carbon emissions” and other effects on air quality in addition to ERCOT potentially prioritizing the companies’ energy needs in the future, resulting in increased prices for retail consumers. They also referenced “extreme weather events exacerbated by climate change” in Texas that had previously increased demand on the grid, including the heat wave in 2022 and the state’s winter storm of 2021.

“By some estimates, Texas is now home to about a quarter of all U.S. Bitcoin mining, and 9 percent of the cryptomining computing power worldwide, a share that is expected to reach 20 percent by the end of next year.”

Warren and the House and Senate members also targeted subsidies given to crypto miners operating in the state that scaled down during peak demand. The letter claimed firms like Riot Blockchain “make money from mining that produces major strains on the electric grid” and collect “significant” payments from subsidies.

“These payments contribute to a larger issue of having consumers, rather than industries with outsized electricity demand like cryptominers, bear the costs of maintaining the electricity grid,” said the letter.

The U.S. lawmakers requested Vegas provide information starting in 2017 on the annual energy consumption of crypto miners operating in Texas and the corresponding carbon dioxide emissions. They also asked for details on the agreements between ERCOT and mining firms as to the payments during periods of peak demand, and how companies might respond to increased load on the grid in the future. The letter requested a response by Oct. 31.

Related: ‘There’s a lot less land to go around’ — Why White Rock established off-the-grid mining in Texas

Though many reports have targeted crypto miners in Texas amid weather events placing increasing demand on the state’s power grid, some have suggested firms setting up operations could result in cheaper power by helping spur infrastructure. The Texas Comptroller’s Office released a report in August suggesting that the relationship between mining firms and the energy industry was more of a symbiotic one — with subsidies benefiting both parties.

Financial Stability Board opens proposed crypto regulatory framework for public comments

“Effective regulatory and supervisory frameworks should be based on the principle of ‘same activity, same risk, same regulation,’” said the FSB proposal.

The international monitoring body Financial Stability Board, or FSB, has proposed a comprehensive framework for cryptocurrencies aimed at addressing potential risks while “harnessing potential benefits of the technology.”

In an Oct. 11 report, the FSB opened a possible crypto regulatory framework to public comment including proposed policy initiatives, financial stability risks and the approach the group could use to establish guidelines for digital assets. According to the report, the FSB will submit proposed recommendations “to promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to crypto-asset activities and markets” to the G20 finance ministers and central bank governors.

“Effective regulatory and supervisory frameworks should be based on the principle of ‘same activity, same risk, same regulation,’” said the FSB proposal. “Where crypto-assets and intermediaries perform an equivalent economic function to one performed by instruments and intermediaries of the traditional financial sector, they should be subject to equivalent regulation.”

The board also targeted stablecoins in its report, suggesting a review of recommendations established in October 2020. Members of the public have until Dec. 15 to submit comments on the proposals.

In an accompanying letter to the G20 dated Oct. 3, FSB chair Klaas Knot cited recent “turmoil in crypto-asset markets” behind the group’s recommendations:

“The current ‘crypto winter’ has reinforced our assessment of existing structural vulnerabilities in these markets. Concerns about the risks they pose to financial stability are therefore likely to come back to the fore sooner rather than later, as are public expectations that policymakers have in place a robust international framework to identify, monitor and address those risks.”

Related: Biden’s cryptocurrency framework is a step in the right direction

Established under a G20 summit in 2009, the FSB has members representing institutions from 25 jurisdictions, including financial regulators, central banks and ministries of finance. However, the board largely has no enforcement authority over the entities, instead acting as an advisory body.

City of Niagara Falls orders Blockfusion facility to cease and desist crypto mining

The city notice effectively stops the facility from conducting “any cryptocurrency mining or related operations” until Blockfusion is in compliance with local zoning ordinances.

The City of Niagara Falls has issued a cease-and-desist notice to New York-headquartered crypto mining firm Bit Digital over a data facility owned and operated by its partner Blockfusion.

In an Oct. 7 announcement, Bit Digital said the city notice would effectively stop the facility from conducting “any cryptocurrency mining or related operations” until Blockfusion was in compliance with local zoning ordinances. The Niagara Falls ordinance went into effect on Oct. 1 following a moratorium, requiring Blockfusion to apply for additional permits that “may take several months to process.”

According to Bit Digital, the Blockfusion facility was one of two forced to cease the operations of more than 4,800 rigs after “an explosion and subsequent fire” at a substation in Niagara Falls in May. The company reported power was restored in September. As of Oct. 6, roughly 17% of Bit Digital’s 13,980 active miners — 2,376 rigs — were at the single New York facility.

“Pursuant to the Mining Services Agreement between Bit Digital and Blockfusion dated August 25, 2021, Blockfusion represents, warrants and covenants that it ‘possesses, and will maintain, all licenses, registrations, authorizations and approvals required by any governmental agency, regulatory authority or other party necessary for it to operate its business and engage in the business relating to its provision of the Services.’” said Bit Digital. “On October 5, 2022, Bit Digital further noticed Blockfusion that it expects it to comply with directives of the Notice.”

Related: Norwegian town wants ‘noisy’ Bitcoin miner out — CEO responds

The City of Niagara Falls imposed a 180-day moratorium on Bitcoin BTC mining starting in December 2021 after many residents reportedly issued many complaints about the facilities, including excessive noise. New York state lawmakers have considered similar proposals for a state-wide moratorium on crypto mining activities. The Niagara Falls moratorium was later extended to end in September.

Cointelegraph reached out to Blockfusion, but did not receive a response at the time of publication.

SEC rejects WisdomTree’s application for a spot Bitcoin ETF… again

Similar to its December 2021 rejection of a WisdomTree spot Bitcoin investment vehicle, the SEC cited concerns about fraud and market manipulation.

The United States Securities and Exchange Commissio  has disapproved of a rule change that would allow exchange-traded fund (ETF) provider WisdomTree to list and trade shares of a Bitcoin BTC ETF.

According to an Oct. 11 filing, the SEC rejected a proposed rule change that would have allowed WisdomTree to list and trade shares of its Bitcoin Trust on the Cboe BZX Exchange after several delays due to extensions and comment periods. WisdomTree first filed the spot Bitcoin ETF application on Jan. 25 with publication in the federal register on Feb. 14.

The SEC said any rule change in favor of approving the ETF would not be “‘designed to prevent fraudulent and manipulative acts and practices” nor “protect investors and the public interest.” Will Peck, WisdomTree’s head of digital assets, told Cointelegraph in a September interview that the SEC’s market manipulation claims would likely be “the hardest nut to crack” in an ETF approval.

Peck said at the time that WisdomTree was “kind of watching this and seeing what’s going to happen” but did not plan to take Grayscale’s approach in filing a lawsuit with the SEC over the rejection of its Bitcoin ETF. He added the company planned to “engage more productively” with the U.S. regulator, positing the SEC would “ultimately get there” in approving a spot crypto investment vehicle.

Similar to its December 2021 rejection of a WisdomTree spot Bitcoin ETF offering, the SEC concluded that the BZX exchange did not have the ability “to obtain information necessary to detect, investigate, and deter fraud and market manipulation, as well as violations of exchange rules and applicable federal securities laws and rules.” In addition, the financial regulator said BZX had been unable to provide data demonstrating ”that wash trading and other possible sources of fraud and manipulation in the broader Bitcoin spot market will be ignored by market participants.”

“BZX has not met its burden of demonstrating an adequate basis in the record for the Commission to find that the proposal is consistent with Exchange Act Section 6 (b) (5), 225 and, accordingly, the Commission must disapprove the proposal,” said the filing.

Related: Why the world needs a spot Bitcoin ETF in the US: 21Shares CEO explains

To date, the SEC has not approved a single spot crypto ETF application in the United States, despite criticism from many lawmakers, regulators and industry leaders. However, the regulator began approving ETFs linked to Bitcoin futures starting in 2021, giving the green light to companies including ProShares and Valkyrie.

Cointelegraph reached out to WisdomTree, but did not receive a response at the time of publication.

US Treasury’s OFAC and FinCEN announce $29M in enforcement actions again Bittrex

Bittrex agreed to pay more than $29 million in a settlement with FinCEN, but the regulator said it will credit a $24-million payment “to settle its potential liability with OFAC.”

The United States Department of the Treasury’s Office of Foreign Assets Control and Financial Crimes Enforcement Network took enforcement actions against crypto exchange Bittrex for allegedly violating sanctions programs as well as reporting requirements under the Bank Secrecy Act, or BSA.

In an Oct. 11 announcement, the U.S. Treasury said Bittrex had agreed to a more than $24-million settlement with OFAC for violations of “multiple sanctions programs” by failing to prevent individuals based in the Crimea region, Cuba, Iran, Sudan and Syria from conducting roughly $263 million in crypto transactions between 2014 and 2017. According to the Treasury Department, Bittrex did not screen users based on accessible location information in the sanctioned countries using internet protocol addresses.

“When virtual currency firms fail to implement effective sanctions compliance controls, including screening customers located in sanctioned jurisdictions, they can become a vehicle for illicit actors that threaten U.S national security,” said Andrea Gacki, director of OFAC. “Virtual currency exchanges operating worldwide should understand both who — and where — their customers are.”

In addition, FinCEN announced parallel enforcement actions in which Bittrex agreed to pay more than $29 million. However, the financial regulator said it will credit Bittrex’s $24-million payment “to settle its potential liability with OFAC.”

According to FinCEN, the crypto exchange “failed to maintain an effective AML program” from 2014 to 2018, “resulting in significant exposure to illicit finance” through privacy coins. The regulator further alleged that Bittrex failed to document many transactions in sanctioned jurisdictions from 2014 to 2017 through suspicious activity reports.

Acting Director of FinCEN Himamauli Das added:

“Virtual asset service providers are on notice that they must implement robust risk-based compliance programs and meet their BSA reporting requirements. FinCEN will not hesitate to act when it identifies willful violations of the BSA.”

In a statement to Cointelegraph, a Bittrex spokesperson said that “none of the allegations” from FinCEN or OFAC related to the exchange’s practices after 2018 and it was “pleased to have fully resolved this matter.” The company added that it “employed third-party experts and service providers” to review its compliance with sanctions and Anti-Money Laundering policies.

Related: US Treasury sanctions Iran-based ransomware group and associated Bitcoin addresses

In December 2020, the U.S. Treasury announced a $98,830 settlement with BitGo over the digital asset custodian allowing residents of many of the same sanctioned jurisdictions — Crimea, Cuba, Iran, Sudan and Syria — to conduct crypto transactions between 2015 and 2019. In February 2021, the government department fined BitPay $507,375 for facilitating “approximately $129,000 worth of digital currency-related transactions with BitPay’s merchant customers” in sanctioned areas.