Joint Statement from OFSI, FCA and Bank of England on controls to prevent circumvention of sanctions

Circumventing Sanctions

Financial sanctions regulations do not differentiate between crypto assets and other forms of assets. The use of crypto assets to circumvent economic sanctions is a criminal offence under the Money Laundering Regulations 2017 and regulations made under the Sanctions and Anti-Money Laundering Act 2018.

Where transactions give rise to concerns about sanctions evasion or money laundering, firms should also consider their obligations to report to the UK Financial Intelligence Unit (UKFIU) at the National Crime Agency under the Proceeds of Crime Act 2002. The UKFIU has published guidance and a Suspicious Activity Reports (SARs) glossary code that should be used when reporting any suspicions.

Steps to Reduce the Risk of Sanctions Evasion via Crypto Assets

Crypto asset firms must take steps to ensure they are compliant with their legal obligations in relation to the sanctions.

Additional Measures with Crypto Assets:

Firms should consider:

• updating business-wide and customer risk assessments to account for changes in the nature and type of sanctions measures
• ensuring that customer onboarding and due diligence processes identify customers who make use of corporate vehicles to obscure ownership or source of funds
• ensuring that customers and their transactions are screened against relevant updated sanctions lists and that effective re-screening is in place to identify activity that may indicate sanctions breaches
• identifying activity that is not in line with the customer profile or is otherwise suspicious and ensuring that these are reported quickly to the nominated officer for timely consideration
• where blockchain analytics solutions are deployed, ensuring that compliance teams understand how these capabilities can be best used to identify transactions linked to higher risk wallet addresses
• engage with public-private partnerships and private-private partnerships to gather insights on the latest typologies and additional controls that might be relevant and share their own best practice examples

Red Flag Indicators

• a customer who is resident in or conducting transactions to or from a jurisdiction which is subject to sanctions, or which is on the UK’s High Risk Third Countries list for anti-money laundering and counter-terrorist financing purposes, or any jurisdiction you have identified as posing an increased risk of illicit financial activity

• transactions to or from a wallet address associated with a sanctioned entity, or a wallet address otherwise deemed to be high-risk, based on its transaction history or that of associated addresses, or other factors
• transactions involving a crypto asset exchange or custodian wallet provider known to have poor customer due diligence procedures or which is otherwise deemed high-risk
• the use of tools designed to obfuscate the location of the customer (e.g., an IP address associated with a virtual private network or proxy) or the source of crypto assets (e.g. mixers and tumblers)

other red flag indicators that are normally associated with money laundering more broadly. In both situations, the aim of the illicit actor is to make an illegal transaction seem legitimate