Recently unsealed court documents have revealed that a Washington DC court is gearing up to charge a US citizen with funneling $10 million in Bitcoin to a sanctioned country.
It is thought that these charges would represent the first time the US Department of Justice (DoJ) has pursued criminal proceedings against an individual for using crypto to dodge sanctions in this way.
In a nine-page opinion letter, US magistrate judge Zia Faruqui says the accused likely used a US-based IP address to operate an unnamed crypto payment platform in contravention of the International Emergency Economic Powers Act (IEEPA). The legislation outlaws the transfer of funds to sanctioned countries including Iran, Cuba, North Korea, and Russia.
The accused individual “advertised [the platform’s] services as designed to evade US sanctions, including through purportedly untraceable virtual currency transactions,” Faruqui wrote.
The opinion was likely made public due to the suspect’s arrest and to highlight potential implications of the IEEPA on exchanges embroiled in sanction evasion via crypto, notes WIRED.
According to the redacted opinion document, the defendant allegedly:
- Used a US-based front company to purchase Bitcoin from a US exchange,
- transferred the funds to an exchange in a country subject to heavy sanctions from the US government,
- and was ultimately rumbled due to misunderstanding how anonymous crypto really is.
“Appearing to rely on this perceived anonymity, Defendant did not hide the Payments Platform’s illegal activity. Defendant proudly stated the Payments Platform could circumvent US sanctions by facilitating payments via Bitcoin,” Faruqui said.
In fact, the individual left a helpful data trail which led the feds to their door. Faruqui notes that the defendant was “reliably dox[xed]” thanks to IP addresses, email search warrants, subpoenas to virtual currency exchanges, banks, and company registration information. Not to mention, the defendant completed Know Your Customer (KYC) verification with the US crypto exchange.
Oblivious crypto exchange could still face charges for sanctions evasion
The letter establishes why sanction evasion through cryptocurrency can be prosecuted on a federal level using Chevron deference, which deals with the interpretation of broad regulation.
In this instance, the federal court will interpret the IEEPA as being consistent with that of the Office of Foreign Assets Control (OFAC). In recent years, the US Department of the Treasury’s sanctions watchdog has brought civil action against several crypto entities for sanction evasion.
And while it appears that the US-based crypto exchange cooperated with law enforcement and was in sanctions evasion unwittingly, it could still be hit with a civil penalty.
In December 2020, BitGo reached a $98,830 settlement with the OFAC for allowing users in sanctioned countries to use its digital wallet management service. Then in February 2021, BitPay settled with the OFAC for $507,375 over 2,102 cryptocurrency-related sanctions violations.
However, speaking to WIRED former prosecutor with experience in crypto cases Jessie K. Liu says the opinion represents the DoJ catching up with the Treasury Department.
“Judge Faruqui is, as far as I’m aware, the first judge who has actually said explicitly that cryptocurrency can run afoul of sanctions,” says Liu.
“But that’s been the Treasury Department’s view for a number of years.”
Faruqui’s a fan of invoking pop culture to drive home his points
While Judge Faruqui’s decision includes neither the name of the accused individual or the US-based exchange embroiled in the scheme, it does include a sprinkling of popular culture references from comedy sketch shows to horror films.
“Yet like Jason Voorhees, the myth of virtual currency’s anonymity refuses to die,” writes Frauqui, referencing the masked villain from the Friday 13th horror franchise.
Faruqui also invoked a vintage Saturday Night Live sketch wherein a talk show host shouts “WRONG” to his guests before letting them answer, to highlight how sanctions evasion through crypto comes under the purview of criminal prosecution.
“Issue One: virtual currency is untraceable? WRONG.”
“Issue Two: sanctions do not apply to virtual currency? WRONG,” Faruqui wrote including URLs to the two sketches he references.
A past case also saw Faruqui reference 1998 cult classic The Big Lebowski, and 1996’s Star Trek: First Contact.