The UK’s Financial Conduct Authority (FCA) recently announced that UK financial regulatory authorities issued a joint statement to financial services firms, including those in the cryptoasset sector, to reiterate the importance of complying with sanctions in light of the unprecedented package of economic sanctions on Russia and Belarus imposed by the UK and its allies in response to Russia’s invasion of Ukraine on February 24, 2022. The joint statement, which was released on March 11, 2022 by the FCA, the Office of Financial Sanctions Implementation (OFSI) and the Bank of England’s Prudential Regulation Authority (PRA), confirms that UK financial sanctions regulations do not differentiate between cryptoassets and other forms of assets and reminds all financial services firms that is a criminal offense under the Money Laundering Regulations 2017 and regulations made under the Sanctions and Anti-Money Laundering Act 2018 to use cryptoassets to circumvent economic sanctions.
The joint statement provides financial services firms with an overview of their legal and regulatory requirements including a reminder of their obligation under the Proceeds of Crime Act 2002 to report transactions involving suspected sanctions evasion or money laundering to the UK Financial Intelligence Unit at the National Crime Agency. The FCA also indicated that it had written to all registered cryptoasset firms in order to highlight the application of sanctions on various entities and individuals.
While cryptoasset and other financial services firms are expected take steps to ensure that their legal obligations for sanctions compliance are met, the joint statement suggests that additional sanctions-specific controls should be implemented where appropriate. These additional steps include updating business and customer risk assessments to account for changes in the nature and type of sanctions restrictions; implementing due diligence processes to identify customers who utilize corporate vehicles that obscure the ownership or source of funds; and, among other things, screening customers and transactions against relevant updated sanctions lists and identifying (and escalating to the nominated officer) activities that are not in line with the customer profile or are otherwise suspicious.
Firms are also encouraged to look for red flag indicators that suggest an increased risk of sanctions evasion. These may include paying special attention to customers who reside in or conduct transactions to or from a jurisdiction that is subject to sanctions or is listed on the UK’s High Risk Third Countries list for anti-money laundering or counter-terrorist financing purposes; transactions to or from high-risk wallet addresses or a wallet address associated with a sanctioned entity; and transactions that involve high-risk cryptoasset exchanges or custodian wallet providers that are known to have poor due diligence procedures.