US Treasury’s OFAC reaches $7.6m settlement with Poloniex

The Poloniex crypto exchange has agreed to pay $7.6 million to settle claims that it permitted users in sanctioned nations to trade digital assets on its platform.

According to an announcement by the US Treasury’s Office of Foreign Assets Control (OFAC), which enforces U.S. economic sanctions, Poloniex will pay $7.6 million for several sanctions offenses.

The regulator established the settlement amount because Poloniex’s offenses were “not voluntarily self-disclosed” and “non-egregious.”

OFAC accused Poloniex of processing as many as 66,000 crypto transactions totaling more than $15.3 million for customers in sanctioned regions between 2014 and 2019, despite the platform having know-your-customer (KYC) information and IP address data.

Despite starting to monitor IP addresses and gather KYC data in 2015, Poloniex did not start blocking prohibited I.P. addresses until 2017.

Per OFAC, Poloniex served customers from Crimea, which Russian forces seized from Ukraine in 2014, as well as Cuba, Iran, Sudan, and Syria, all of which are subject to or have previously faced comprehensive U.S. sanctions that prohibit American businesses from operating there.

Violations were reduced after Poloniex changed hands

In 2018, Circle Internet Financial paid $400 million to acquire Poloniex. According to OFAC, Circle implemented additional sanctions and compliance measures that considerably lowered the frequency of violations.

However, the regulator reported that some sanctions violations persisted in 2018 and 2019, particularly those involving several accounts opened by citizens of Crimea.

Poloniex was later split off from Circle into a new business in 2019 known as Polo Digital Assets, supported by an Asian investment group that includes Justin Sun, the founder of the TRON network and an advisor at Poloniex’s competitor, Huobi.

Customers from the United States were excluded from the split, and Circle terminated services for U.S. Poloniex clients in late 2019.

The settlement emphasizes the sanctions compliance risks that crypto businesses face in the United States. According to OFAC, crypto companies, like financial service providers, should adopt a customized, risk-based sanctions compliance program.

Poloniex’s settlement with OFAC comes after the crypto exchange agreed to pay $10 million to settle an investigation by the Securities and Exchange Commission (SEC) in 2021.

The SEC accused Poloniex of violating investor protection rules when it failed to register its operations with federal regulators. 

According to the SEC, from 2017 to 2019, the exchange allegedly allowed consumers to trade crypto assets that were unregistered securities.

Before the SEC settlement, Canada’s Ontario Securities Commission (OSC) had also launched enforcement action against Poloniex in May 2021.