The U.S. Department of Treasury’s Office of Foreign Assets Control recently announced that it reached a $750,000 settlement with digital asset exchange ShapeShift AG to resolve its potential civil liability for apparent violations of several U.S. sanctions programs. According to OFAC, the now-defunct exchange processed more than 17,000 digital asset transactions for users located in Cuba, Iran, Sudan, and Syria between December 2016 and October 2018 (the relevant period), in violation of OFAC sanctions. OFAC also reported that the settlement amount reflected OFAC’s determination that ShapeShift’s apparent violations were non-egregious in nature, not voluntarily self-disclosed, and were unlikely to reoccur because the exchange had ceased all operations.
According to OFAC’s Enforcement Release, ShapeShift – a company incorporated in Switzerland and headquartered in Colorado – enabled customers to exchange a variety of digital asset on its online platform. When the exchange was operational, most of the corporation’s activities were handed from the United States by officers and employees who were U.S. persons. The exchange reportedly handled as many as 20,000 daily transactions and enabled customers to exchange at least 79 different digital assets at its peak. ShapeShift officially ended operations and stopped processing digital asset transactions in 2021. However, during the relevant period, ShapeShift had no sanctions compliance program and failed to screen transactions for designated or blocked persons before they were processed, according to OFAC. ShapeShift allegedly processed a total of 17,183 digital asset transactions worth approximately $12.5 million during the relevant period, in violation of the Cuban Assets Control Regulations (CACR), the Iranian Transactions and Sanctions Regulation (ITSR), the Sudanese Sanctions Regulations, and the Syrian Sanctions Regulations. According to OFAC, ShapeShift adopted a sanctions compliance program only after receiving an administrative subpoena from OFAC.
OFAC indicated in its Enforcement Release that this case highlights why digital assets companies need effective sanctions compliance programs, and the importance of adopting remedial measures to address compliance gaps promptly when issues are discovered. This case also demonstrates how foreign-incorporated companies may be subject to U.S. jurisdiction, particularly when their physical headquarters and overall business operations are located in the United States.