The Office of Foreign Assets Control of the US Department of the Treasury has announced a settlement with Poloniex, LLC, a now-inactive online trading and settlement platform headquartered in Boston, Massachusetts. The settlement resolves Poloniex’ potential civil liability for nearly 66 thousand apparent violations of several different sanctions programs.
According to OFAC, Poloniex began offering online digital assets trading and settlement services in January 2014, accepting customers from sanctioned jurisdictions. After May 2015, when Poloniex implemented a sanctions compliance program, many such customers were able to continue using the company’s platform despite having IP addresses in sanctioned jurisdictions, although Poloniex did close some accounts after conducting additional diligence. Only in June 2017 did the company begin blocking accounts registered with IP addresses in sanctioned jurisdictions, significantly reducing the rate of apparent violations on its platform. Additional internal controls were developed after the company was acquired by Circle Internet Financial Limited in February 2018, resulting in further compliance enhancements.
OFAC found that between July 2018 and September 2019, Poloniex processed 65,942 online transactions worth over $15 million for 232 customers apparently located in sanctioned jurisdictions, including Crimea, Cuba, Iran, Sudan and Syria, in apparent violation of section 1(a)(iii) of Executive Order 13685, “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine”; the Cuban Assets Control Regulations, 31 CFR § 515.201; the Iranian Transactions and Sanctions Regulations, 31 CFR § 560.204; the Sudanese Sanctions Regulations, 31 CFR § 538.205 (now repealed), and; the Syrian Sanctions Regulations, 31 CFR § 542.207.
In calculating the appropriate penalty, OFAC took into consideration aggravating factors such as Poloniex’ failure to exercise due caution or care for its sanctions compliance obligations when it first opened its doors to online trading, the economic benefit conveyed by the apparent violations on 232 persons in sanctioned jurisdictions, and the fact that Poloniex had reason to know that these users were located in sanctioned jurisdictions. OFAC deemed as mitigating factors Poloniex’ small size at the time of the apparent violations, its clean record of violations (likewise for its later parent company, Circle), and the enhanced compliance measures taken by the company beginning in 2018, before OFAC began its investigation. These measures included freezing user accounts pending complete know-your-customer review, implementing an automated verification process for identity documents, preventing users from activing accounts with profile information matching a sanctioned jurisdiction, imposing geolocation restrictions to block accounts based in Syria, Iran, Cuba, Sudan and North Korea, closing accounts containing Crimea in their profile information, expanding compliance personnel and improving the company’s compliance training programs. Moreover, many of the apparent violations involved very low-value transactions, and the number of transactions represented a small percentage of the total annual transactions on the Poloniex platform. Finally, OFAC viewed favorably the substantial cooperation provided by both Poloniex and Circle in the investigation.
In light of these factors, OFAC agreed to a settlement amount of $7,591,630, well below the base civil monetary penalty amount applicable to the matter, over $99 million.