Cryptocurrency exchange Poloniex LLC has agreed to pay about $7.59 million to settle allegations it allowed users in sanctioned regions to trade digital assets on its platform, the U.S. Treasury Department said.
The settlement agreement says Poloniex processed digital assets transactions worth a total of more than $15.3 million for customers in sanctioned regions between 2014 and 2019, despite the platform having know-your-customer information and internet protocol address data that told them otherwise, according to the Treasury’s Office of Foreign Assets Control, which enforces U.S. economic sanctions.
These 232 customers were located predominantly in Crimea, which Russian forces seized from Ukraine in 2014, as well as in Cuba, Iran, Sudan and Syria, regions that continue to face or previously faced comprehensive U.S. sanctions that bar U.S. companies and individuals from doing business there, OFAC said.
Poloniex, which according to OFAC has its principal place of business in Boston, was acquired by cryptocurrency operator Circle Internet Financial for $400 million in 2018. OFAC said Circle implemented additional sanctions compliance controls that significantly reduced the rate of additional similar sanctions violations. But some sanctions violations, particularly those related to a number of accounts opened by people in Crimea, continued in 2018 and 2019, OFAC said.
Poloniex was later spun out from Circle into a new company backed by an Asian investment group in 2019 and is now known as Polo Digital Assets, according to statements from Circle. The spinout didn’t include U.S. customers and Circle wound down operations for U.S. Poloniex customers in late 2019.
The OFAC settlement agreement said Poloniex currently has no business operations and no employees.
“As disclosed in our public filings with the U.S. Securities and Exchange Commission, Circle agreed to assume certain potential regulatory liabilities associated with the acquisition of Poloniex, a Circle subsidiary that formerly ran the Poloniex digital asset trading platform from February 2018 to November 2019, and we are pleased to put this legacy issue behind us,” a Circle spokesman said in an email.
Representatives for Polo Digital Assets didn’t immediately respond to a request for comment.
OFAC’s resolution with Poloniex comes after the trading platform agreed to pay $10 million to settle a Securities and Exchange Commission probe in 2021. The SEC alleged Poloniex violated investor-protection laws by not registering its operations with federal regulators. The company allowed users to trade digital assets that were unregistered securities from 2017 through 2019, the SEC alleged.
Monday’s settlement highlights the sanctions compliance risks faced by digital asset companies. OFAC has said that crypto companies, like financial services providers, should make sure they develop a tailored, risk-based sanctions compliance program.
Jeffrey Newman is a whistleblower lawyer who represents clients under the SEC whistleblower program. He can be reached at JeffNewman@JeffNewmanlaw.com or at 617-823-3217.
