The UK's Office of Financial Sanctions Implementation (OFSI) of Her Majesty’s Treasury has recently included cryptocurrencies in its updated guidance on sanctions.
According to updated documents from the OFSI, cryptocurrency exchanges must identify and report any suspected attempt to evade Russian sanctions using digital assets to the agency and freeze the assets. As per the new rules, crypto exchanges will face criminal charges or financial penalties if they "fail to report clients designated for sanctions."
Growing Concern Over Use of Crypto to Evade Sanctions
The OFSI's official guideline on financial sanctions was reportedly updated on August 30th to include crypto assets as the list of sanctioned Russian entities continues to mount.
Regulators are worried that Russian oligarchs might be using cryptocurrencies like bitcoin, which are borderless and censorship-resistant, by design, to evade the financial restriction imposed on them following Russia's invasion of Ukraine.
The sanctions agency also pointed out that other payment instruments and assets that are "used to obtain funds, goods or services", would be categorized as a sanction breach if used with such intent.
"It is vital to address the risk of cryptoassets being used to breach or circumvent financial sanctions," a UK Treasury spokesperson said.
Global financial regulators imposed sweeping sanctions in late February and early March following Russia's invasion of Ukraine. While several traditional financial institutions such as banks and payment processors have long faced stringent requirements over Russia's sanctions, crypto service providers failed to comply.
In March, leading cryptocurrency exchange Binance stated that it would not ban Russian citizens from the exchange, only those targeted by sanctions, claiming that the digital asset industry is "meant to promote greater financial freedom." However, the exchange later updated its stance on the sections in April and halted deposit and withdrawal services for Russian residents.
With the latest OFSI update on sanctions, crypto exchanges and service providers must now also comply with these strict requirements. The UK Treasury spokesperson added, "These new requirements will cover firms that either record holdings of or enable the transfer of crypto assets and are therefore most likely to hold relevant information."
Earlier in March, the UK Financial Conduct Authority (FCA) urged financial service firms and crypto exchanges to "play their part in ensuring that sanctions are complied with."
The digital asset industry has witnessed increased regulation over the past few years as the market continues to mature. For the longest time, most investors have remained sceptical of venturing into the crypto market due to murky regulations.
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