U.S. Federal Judge Approves Justice Department’s Criminal Proceedings for Using Crypto to Evade Sanctions

The U.S. Department of Justice may bring criminal charges against a U.S. citizen allegedly violating sanctions through cryptocurrencies.

The unnamed individual who is the subject of a Justice Department criminal investigation allegedly sent money from a U.S.-based cryptocurrency exchange to a country that the U.S. currently imposes sanctions on — suggesting Russia, Cuba, North Korea, Syria or Iran — an exchange sending over $10 million in bitcoin. The document said the individual "conspired to violate the International Emergency Economic Powers Act" and conspired to defraud the United States.

The person allegedly "proudly stated that payment platforms could use Bitcoin to circumvent U.S. sanctions" and knew that the country was subject to U.S. sanctions. According to the filing, the U.S.-based crypto exchange obtained the user’s information through a know-your-customer compliance policy.

In his opinion, Magistrate Judge Zia Faruqui stated: “The Department of Justice can and will bring criminal proceedings against individuals and entities that fail to comply with [OFAC] regulations, including with regard to virtual currencies. Prohibited financial services include any Direct or indirect transfers of funds...by a U.S. person/entity, wherever located, to a sanctioned entity/country. For the avoidance of doubt, financial service providers include virtual currency exchanges."

Faruqui said:

“The question is no longer whether virtual currencies will survive (i.e. FUD), but whether fiat currency regulations will keep up with frictionless and transparent payments on the blockchain.”

The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) administers the sanctions for the United States. Following Russia's military invasion of Ukraine, the government office warned U.S. residents against using digital assets to benefit certain Russian entities and individuals, and removed Russia-based darknet marketplace Hydra, cryptocurrency mining service provider BitRiver, and digital currency exchange Garantex included on its list of "specially designated nationals," which generally prohibits Americans from doing business with them.

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