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OFAC Fines Poloniex $7.6M For Alleged Violation of Sanctions

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The US Treasury Department's Office of Foreign Asset Control (OFAC) today made public a settlement with Poloniex which agreed to a potential civil liability arising from “apparent violations of sanctions.” The economic sanctions administrator said Poloniex defied stipulations of broad sanction programs against Crimea, Iran, Syria and others. The exchange company was specifically accused of facilitating digital assets transactions worth more than $15 million which were executed by users from the regions for almost six years. The settlement terms included an obligation from the exchange company to pay $7.6 million.

“Between January 2014 and November 2019, the Poloniex trading platform allowed customers apparently located in sanctioned jurisdictions to engage in online digital asset-related transactions—consisting of trades, deposits, and withdrawals—with a combined value of $15,335,349, despite having reason to know their location based on both KYC information and IP address data,” the agency shared in a May 1 communication on its website.

The law enforcement department explained that the penalty was levied following a discovery that the exchange's ” violations were not voluntarily self-disclosed and were not egregious.” Notably, the latest contravention in failure to do due diligence adds to the exchange's past accounts of legal issues in the US.

Poloniex was a target of the US Securities and Exchanges Commission (SEC) in August 2021 after the market regulators revealed that the exchange supported and sold unregistered securities on its platform between July 2017 through November 2019. To settle the charges, Poloniex opted for an outside-the-court settlement, agreeing to pay an unspecified sum north of $10 million to the commission. Outside the US, the exchange came under scrutiny from Canada's Ontario Securities Commission (OSC) in May 2021.

Last November, Kraken entered a similar arrangement with the sanctions watchdog for failed to prevent Iran-based users from accessing and using its platform to carry out transactions. The exchange voluntarily reported its non-compliance which led to more than $1.68 million worth of transactions being processed between 2015 and 2019. Notably, Monday's development comes a week since the Department of Justice (DoJ) unsealed indictments centered around contravention of sanctions imposed by the OFAC and the UN against North Korea.

DoJ acts on the group that facilitated North Korea’s Lazarus Group stolen crypto conversion

The US Office of Foreign Assets Control confirmed last week that it sanctioned persons who helped the notorious North Korea state-affiliated hacking collective Lazarus Group convert some stolen crypto to cash.

An April 24 press release from the Department of Justice detailed that the group, which included Mainland China digital asset trader Wu Huihu, Hong Kong British National Cheng Hung Man, China-based North Korean serving as a deputy representative of the Korea Kwangson Banking Corporation Sim Hyon Sop, and an individual known as online as Jammy Chen, collaborated to launder hack loots and buy goods for North Korea through the use of funds acquired, via Hong Kong-based front entities.

“Today's indictments reveal North Korea’s continued use of various means to circumvent U.S. sanctions. We can and will ‘follow the money,’ be it through cryptocurrency or the traditional banking system, to bring appropriate charges against those who would help to fund this corrupt regime,” Matthew M. Graves, US Attorney for the District of Columbia, said.

Sim allegedly oversaw the payments (in US dollars), which were then processed via Jammy Chen. The entity behind the Jammy Chen moniker sought the services of Wu and Cheng to help locate sham front companies and execute payments in a manner to circumvent economic restrictions from the US. The ultimate destination of the fiat obtained from converting crypto exploits was to support North Korea's weapons of mass destruction and ballistic missile programs. Tobacco products and communication devices were among other goods identified as purchased by North Korea with the fiat.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.