The US sanctions list keeps getting longer. Most recently, the US Department of the Treasury has revealed it’s considering adding digital-wallet addresses to its growing list of sanctions, but only if they can link the wallet address to someone who has been blocked.
The agency updated the documents on March 19 on the heels of a ban issued by President Trump on Venezuela’s state-issued cryptocurrency, the Petro.
According to the documents, the Office of Foreign Assets Control would add the digital wallet addresses “to alert the public of specific digital currency identifiers associated with a blocked person.” They added that the list of cryptocurrency addresses is “not likely to be exhaustive.”
It sounds like another way to enforce know-your-customer (KYC) standards –
“Parties who identify digital currency identifiers or wallets that they believe are owned by, or otherwise associated with, an [specially designated nationals] and hold such property should take the necessary steps to block the relevant digital currency and file a report with OFAC that includes information about the wallet’s or address’s ownership, and any other relevant details,” the document states.
The sanctions against blocked individuals would be used in conjunction with other tools the agency relies on to combat crime, including illicit transactions with cryptocurrencies.
Why the Wallet?
The digital address is a set of letters and numbers associated with a digital wallet that dictate where cryptocurrencies end up, without the need for a bank of payments platform.
A former government adviser told The Wall Street Journal that wallet addresses are the best tool regulators have got to uncover fraud. Once a bad actor knows their wallet address has made the sanctions list, they may ditch it for another one. But at that point, financial entities could use the blacklisted address for clues to identify the next one.
The mechanics of sanctions on cryptocurrency wallet addresses work similar to those used in the shipping industry, for instance. In that case, ships or other properties are blacklisted.
“Just like in the case of vessels, [Treasury] will identify certain species of digital currency as being issued by prohibited actors,” Paul Hastings attorney Scott Flicker told the WSJ. But while the sanctions may lead to illicit funds, they may fall short in uncovering the perpetrators of the fraud.
“A new address is generated each time a digital currency user requests money so these addresses…will be those that were used once and will never be used again,” another attorney pointed out in the WSJ story.
The US government is considering implementing sanctions on cryptocurrency wallet addresses on the heels of recently released whistleblower documents revealing covert operations undertaken by the US National Security Agency to spy on bitcoin transactions.
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