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[OPEN ACCESS] Ofac's crypto blacklist could drive investors to riskier exchanges

Jackson, Olly

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International Financial Law Review

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Trade Journal

International Financial Law Review

London: Euromoney Institutional Investor PLC

Citation/Abstract coverage: Sep 1982 - present

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; London (Apr 6, 2018).

Digital currencies in the US will be included on the SDN list. This may backfire significantly

The US Treasury’s Office of Foreign Assets Control's (Ofac) decision to blacklist cryptocurrency addresses could backfire and drive investors to smaller, less transparent exchanges.

The agency's new March 19 guidance adding digital currencies to the Specially Designated Nationals and Blocked Persons List (SDN) in the same way as fiat currencies is intended to reduce money laundering and fraud. But this decision could lead investors to riskier exchanges. 

The SDN list includes individuals, groups and companies owned by targeted countries or acting on behalf of targeted countries, named specially designated nationals. Their assets are blocked and US persons are generally prohibited from dealing with them. The list also includes individuals, groups and entities designated under programmes that are not necessarily country-specific. This is widely expected have wide repercussions for exchanges and the cryptocurrency sector itself. Blackrock chief executive Larry Fink previously branded bitcoin an index of money laundering. 

Going underground

The changes are yet another layer of regulatory scrutiny that cryptocurrency exchanges will have to navigate. This could, however, go against the regulators’ aim of providing more investor protection. 

“People may not use the prominent exchanges and could go underground where the investor risks are even greater," said Linklaters partner Doug Davison.

The Ofac guidance presents yet another hurdle for US exchanges to address. This new development is particularly onerous because the SDN list is updated constantly, requiring exchanges to frequently check the list to see if any of their investors are included. This is a daunting task, particularly for start-ups, which may already have to file with the Securities and Exchange Commission (SEC). 

For many crypto-zealots, who tend to be very strong advocates of privacy and banking away from state intervention, this could drive them to less...