How Crypto Firms Can Comply with Ongoing Sanctions

As top policymakers continue ringing alarm bells about Russian entities attempting to dodge sanctions with cryptocurrencies, it is pertinent for the crypto industry to stay in line with the latest regulatory developments in order  to ensure that the sector does not breach any applicable sanctions regulations, which would only invite potentially hefty fines and possible sanctions.

The good news is that many crypto platforms are falling in line with new regulations aimed at countries who have been subject to both comprehensive and targeted sanctions programmes. There has been increasing recognition within the crypto industry that countries, individuals and entities who are subject to sanctions may try to use cryptocurrencies to evade sanctions – at least some analysts believe that is possible.  

But as we have seen with sanctions in the past in traditional finance, compliance professionals in the crypto industry can identify and mitigate sanctions risk if equipped with the right technology tools and data. A solid blockchain analytics solution like Chainalysis for example, would equip compliance professionals with the ability to conduct effective investigations and counterparty risk analysis.

Technology is key in compliance

Working with a leading technology company that can help your crypto platform keep up with the plethora of new sanctions is vital in staying compliant with global regulators. As a crypto platform leader, you will want to work with a technology firm that is continuously developing product improvements that will deliver workflow efficiency to your company. 

With ongoing sanctions, your technology provider should accelerate timely releases of updates that optimize alert thresholds. Many technology firms in the crypto space are expediting releases of additional filters that make it easier for you to understand, prioritize and manage alerts. Improving behavioral alerts will also help with any concerns related to sanctions.

In other words, you will want to work with industry leading blockchain analysis companies such as Chainalysis, Nansen, Merkle Science, and Solidus Labs. Having a deep-learning powered surveillance and compliance infrastructure for your blockchain-based financial services company will ensure that you are always prepared to address any emerging risk areas.

Failing to comply with regulations

The repercussions of being placed on a sanctions watchlist are far-reaching. For companies, people, and financial institutions, it can result in having assets frozen and causing reputational damage that may end up being irreparable. Failure to comply with such sanctions can have serious consequences, criminal implications, financial penalties and even the risk of being sanctioned yourself.

Crypto firms to be regulated like banks

Right now, the sanctions coming from the U.S., Europe and Australia apply to financial institutions. Although some U.S. officials have been discussing ways to sanction Russia’s cryptocurrency industry, it doesn’t seem to be happening yet. 

Binance's CEO made it clear that sanctioning crypto wallets and firms won’t have much of an effect since the industry is still in its nascent stages of growth, “The truth is, crypto is too small for Russia. If we look at the crypto adoption today, there is probably about 3% of the global population with some kind of crypto exposure (ie, owning some crypto). Of those, most only have a small percentage of their net worth in crypto. Less than 10% on average. So, there is probably only less than 0.3% of the global net worth in crypto today. This percentage applies equally to Russia.”

But this will change in the future as crypto continues to grow. Although right now the global crypto market cap is under $2 trillion, as it continues to be adopted by people and companies across the world, this number will increase. This will cause regulators to regulate the crypto industry increasingly like the traditional financial industry.

Crypto must lead in compliance, KYC and AML procedures

Crypto platforms should be vigilant to constantly screen global watchlists and block questionable IP addresses. Conducting sanctions screening as part of your KYC protocol and providing information to regulators when asked is becoming the new norm.  

As leaders in the crypto industry, we want to make sure that we have robust KYC and AML procedures in place along with built-in mechanisms to help identify bad actors. Remaining vigilant will ensure that we all play our part in meeting regulatory obligations during these unprecedented times.