Defunct crypto exchange ShapeShift settles US sanctions violations for $750,000
The US Treasury’s Office of Foreign Assets Control (‘OFAC’) has settled with defunct Swiss-incorporated cryptocurrency exchange ShapeShift AG for $750,000 over thousands of apparent violations of multiple US sanctions programmes involving transactions with users in Cuba, Iran, Sudan and Syria.
Between December 2016 and October 2018, ShapeShift conducted 17,183 digital asset transactions worth $12.57 million with users located in sanctioned jurisdictions without any sanctions compliance programme to screen users or transactions, OFAC said.
The exchange, which had operated from Denver before it ceased operations in 2021, had ‘no sanctions compliance program in place to screen users or transactions for a nexus to sanctioned jurisdictions’ during the violation period, according to the enforcement notice. The company possessed Internet Protocol address information that could have indicated user locations but failed to use it for screening purposes.
ShapeShift AG had operated as a centralised cryptocurrency exchange until early 2021 when it ceased operations and began winding down its corporate structure. The company subsequently transformed into a decentralised autonomous organisation, with the current ShapeShift platform operating as a decentralised entity separate from the sanctioned corporate structure.
OFAC cited this transformation as a mitigating factor in reducing the penalty, noting that the defunct company is ‘unlikely to engage in any further transactions that could result in violations’.
‘ShapeShift failed to exercise a minimal degree of caution or care for its sanctions compliance obligations when it failed to implement internal controls to prevent users located in sanctioned jurisdictions from conducting transactions on its platform,’ OFAC stated as an aggravating factor.
The violations included 39 apparent breaches of Cuban sanctions regulations, 16,839 violations of Iranian sanctions rules, 33 violations of Sudanese sanctions, and 272 violations of Syrian sanctions regulations.
OFAC noted several mitigating factors that reduced the penalty from a potential base amount of $39.5 million, including ShapeShift’s status as a ‘relatively small company’ that has since ceased operations. The company also cooperated with OFAC’s investigation and implemented remedial compliance measures after receiving an administrative subpoena.
Although incorporated in Switzerland, ShapeShift was considered subject to US jurisdiction because it was headquartered in Denver, Colorado, with most officers and employees being US persons who directed operations from the United States. The company’s US-based engineers created and maintained the platform’s software code.
Only after receiving OFAC’s subpoena did ShapeShift adopt a sanctions compliance programme that included mandatory screening of customers against the Specially Designated Nationals list and procedures for identifying and blocking users from sanctioned jurisdictions.
The settlement ‘highlights the importance for digital asset actors subject to U.S. jurisdiction of implementing effective, risk-based sanctions compliance controls,’ OFAC stated.
https://content.govdelivery.com/accounts/USTREAS/bulletins/3f3d633
