Iran sanctions screening oversights result in Kraken paying $362,000

According to the Office of Foreign Assets Control of the Treasury Department, Kraken, a virtual currency exchange,  will pay a fine of about $362,159 to resolve allegations that it violated American sanctions on Iran (OFAC).

According to OFAC's enforcement announcement from Monday, Payward, doing business as Kraken, appeared to approve 826 transactions totalling approximately $1.7 million on behalf of people residing in Iran between 2015 and 2019. Kraken was accused by OFAC of using improper geolocation techniques during that time, which allowed IP addresses from countries that had been sanctioned to execute transactions on its network.

Kraken consented to pay $100,000 as part of the settlement in order to put in place specific sanctions compliance controls. OFAC found the potential violations were not particularly serious after Kraken voluntarily reported them.

Customers of Kraken utilize its platform to buy, sell, or keep cryptocurrencies as well as to exchange one cryptocurrency for another or to convert fiat currency.

Kraken used technologies that made it impossible for users from countries like Iran who have been sanctioned to register accounts. On its platform, it did not, however, use IP blocking software for transactional operations. Because of this, OFAC said that "[A]ccount holders who established their accounts outside of sanctioned jurisdictions appear to have accessed their accounts and transacted on Kraken's platform from a sanctioned jurisdiction," specifically Iran.

Kraken "failed to exercise due caution or care in its sanctions compliance obligations" when it was aware that it had international users but did not take anything to stop people from sanctioned countries from using its network to complete transactions, according to OFAC. To avoid repeat offenses, the company has taken corrective action.

"[T]his case highlights the importance of using geolocation tools, including IP blocking and other location verification tools, to identify and prevent users located in sanctioned jurisdictions from engaging in prohibited virtual currency-related transactions," according to OFAC. "In particular, limiting the use of such controls only to the time of account opening—and not throughout the lifetime of the account or with respect to subsequent transactions—could present sanctions risks to virtual currency-related companies."

"This case also demonstrates the value of a company implementing robust remedial measures after becoming aware of a potential sanctions issue, including the deployment of blockchain analysis tools and compliance-related training on blockchain analytics, as well as committing to future sanctions compliance investments."

Kraken hired a head of sanctions and compliance team to oversee its sanctions compliance program in addition to introducing geolocation filtering to keep users who reside in restricted areas from accessing its network. Kraken contracted with a new vendor who uses artificial intelligence to undertake nationality verification as well as enhanced its relationship with an existing vendor to include screening capabilities. In addition, the business engaged in more compliance training for its employees and utilized blockchain analytic tools to help with monitoring punishments.

In a statement sent through email, Kraken's chief legal officer, Marco Santori, expressed his company's happiness at the resolution.

Kraken had already strengthened its compliance efforts "even before entering into this resolution," he claimed. "This includes further strengthening control systems, expanding our compliance team, and enhancing training and accountability."

By fLEXI tEAM