In response to Russia’s invasion of Ukraine, the United
States and dozens of its allies and partners around the globe have
imposed what the White House has called “the most impactful,
coordinated, and wide-ranging economic restrictions in
history.”1 Although Russia is still not subject to
a complete embargo in the United States, the sanctions placed on
Russia have been severe and targeted against individuals and
entities (“persons”) operating in some of its most
important sectors, such as the financial sector.2 Under
U.S. sanctions, for example, several key Russia-based financial
institutions—including Russia’s largest bank—and
certain Russian elites (also known as “oligarchs”) are
now blocked, meaning their assets within the United States or in
possession or control of U.S. Persons3 are now
“frozen.” Furthermore, several top Russian banks have
been banned from the Society for Worldwide Interbank Financial
Telecommunication (“SWIFT”)—a critical messaging
system used by banks to make global payments. Such broad economic
sanctions—in particular, those on Russia-based financial
institutions—may heighten the risks for evasion through
cryptocurrencies and other methods outside the traditional banking
On April 20, 2022, the U.S. Department of the Treasury’s
Office of Foreign Assets Control (“OFAC”) sanctioned (1)
a Russian commercial bank and its subsidiary for suggesting
sanctions-evasion techniques to its clients, including offering a
SWIFT-alternative communication channel to process U.S. dollar
payments to sanctioned entities; (2) more than 40 persons across
the globe described as a “worldwide sanctions evasion and
malign influence network” acting on behalf of a previously
designated oligarch to evade sanctions; and (3) a virtual currency
mining company for “operating or having operated in the
technology sector of the Russian Federation
economy.”4 In addition, over the past few months,
OFAC, the Department of Commerce, the Federal Reserve, and the
Financial Crimes Enforcement Network (“FinCEN”) have
issued alerts regarding Russian sanctions evasion, many of which
note the use of cryptocurrencies as a part of such schemes.
Because U.S. Persons are broadly prohibited from engaging in
transactions with sanctioned parties, and as sanctions are
“strict liability,” sanctions evasion not only presents
designation risks for the evaders and facilitators but also
presents risks of enforcement action (financial penalties), and
practical and reputational risks to unwitting persons that process
such payments. Considering the heightened risk of Russia sanctions
evasion—including through the use of
cryptocurrencies—financial institutions, crypto markets and
exchanges, and other persons and individuals subject to U.S.
jurisdiction or doing business with U.S. Persons, should consider
implementing enhanced due diligence and/or taking extra precautions
to avoid prohibited transactions or parties.
This article (1) provides an overview of OFAC sanctions
jurisdiction and circumvention prohibitions, (2) summarizes recent
Russia sanctions, (3) provides a synopsis re sanctions evasion
through cryptocurrency, (4) highlights existing U.S. regulatory
guidance regarding sanctions evasion through cryptocurrencies, and
(5) recommends measures that persons and companies may wish to
consider to mitigate the risk of sanctions violations.
1. OFAC Sanctions Jurisdiction and Prohibited
OFAC has jurisdiction over all U.S. Persons, which under
Executive Order 14024, Blocking Property With Respect To Specified
Harmful Foreign Activities of the Government of the Russian
Federation (“EO 14024”), includes “any United States
citizen, lawful permanent resident, entity organized under the laws
of the United States or any jurisdiction within the United States
(including foreign branches), or any person in the United
States.”5 In addition, U.S. Persons generally are
prohibited from approving, financing, facilitating, or guaranteeing
any transaction by a foreign person where the transaction would be
prohibited if performed by a U.S. person or within the United
States.6 Furthermore, non-U.S. Persons can be brought
within OFAC’s jurisdiction when there is some U.S. nexus to the
transaction or where they cause U.S. Persons to violate sanctions.
Finally, any transaction that circumvents sanctions or attempts to
circumvent sanctions—i.e., that “evades or avoids, has
the purpose of evading or avoiding, causes a violation of, or
attempts to violate” the prohibitions, and “any
conspiracy formed to violate” the prohibitions—also is
prohibited and considered a separate violation.7
OFAC’s jurisdiction is broad and, even absent U.S.
touchpoints on a transaction, there are sanctions risks for
non–U.S. Persons in engaging in activities with sanctioned
persons. For example, non–U.S. Persons may be sanctioned for
materially assisting, sponsoring, or providing financial, material,
or technological support for, or goods or services to or in support
of, blocked persons.8 EO 14024 also authorizes sanctions
on non-U.S. Persons for circumvention activities and
attempts—e.g., any person directly or indirectly engaged in,
or having attempted to engage in, deceptive or structured
transactions or dealings to circumvent any United States sanctions,
(including through the use of digital currencies or assets or the
use of physical assets) for, on behalf of, or for the benefit of
the Government of the Russian Federation.9
2. Russia Sanctions Overview
The United States and over 30 of its allies and partners have
imposed sanctions on Russia in response to Russia’s invasion of
Ukraine.10 As a part of such efforts, several Russian
banks have been banned from the SWIFT network, which is a messaging
system widely used by traditional banks and others in making global
payments. In the United States alone, the U.S. government undertook
several actions with respect to Russia, including, but not limited
to, imposing blocking sanctions on important Russian banks,
political figures, and oligarchs; certain debt and equity
restrictions relating to several major firms; restrictions on
Russian sovereign debt and entities critical to managing one of
Russia’s key sovereign wealth funds; prohibitions related to
transactions involving the Central Bank of the Russian Federation,
the National Wealth Fund of the Russian Federation, and the
Ministry of Finance of the Russian Federation; certain import and
export prohibitions; a prohibition on “new investments”
in Russia; and more. Winston & Strawn has previously provided
information on these sanctions in blogs published on March 28, 2022 and May 13, 2022.
OFAC’s “blocking sanctions” are the strongest form
of sanction. When OFAC designates a person under such sanctions,
they are identified as a Specially Designated National
(“SDN”) or “blocked person” and listed on
OFAC’s List of Specially Designated Nationals and Blocked
Persons (the “SDN List”). As a result, all of that
person’s property, and interests in property, that is in the
United States or in the possession or control of U.S. Persons is
blocked, i.e., frozen—and typically in an interest-bearing
account; however, OFAC has special guidance for blocking
digital-currency transactions.11 In addition, under
OFAC’s 50 Percent Rule, any entities that are owned, directly
or indirectly, 50% or more by an SDN/blocked person, whether
individually or in the aggregate, are also considered blocked. As a
result of the blocking requirement, U.S. Persons are prohibited
from dealing with the blocked person in any way—including the
making of any contribution or provision of funds, goods, or
services by, to, or for the benefit of any blocked person and the
receipt of any contribution or provision of funds, goods, or
services from any such person.12
OFAC has designated hundreds of non–U.S. Persons as SDNs
over the past few months for engaging in conduct for or on behalf
of sanctioned persons and/or for evading Russia sanctions. Most
recently, on April 20, 2022, OFAC sanctioned (1) a Russian
commercial bank and its subsidiary for suggesting sanctions-evasion
techniques to its clients, including offering a SWIFT-alternative
communication channel to process U.S. dollar payments to sanctioned
entities; (2) more than 40 persons across the globe described as a
“worldwide sanctions evasion and malign influence
network” acting on behalf of a previously designated oligarch
to evade sanctions; and (3) a virtual currency mining company for
“operating or having operated in the technology sector of the
Russian Federation economy.”13 Notably, the virtual
currency mining company was not expressly designated for evasion;
however, OFAC noted that while Russia has a “comparative
advantage in crypto mining due to energy resources and a cold
climate,” “mining companies rely on imported computer
equipment and fiat payments, which makes them vulnerable to
sanctions.”14 In the press release, OFAC noted that
“[t]he United States is committed to ensuring that no asset,
no matter how complex, becomes a mechanism for the Putin regime to
offset the impact of sanctions.”15
3. Sanctions Evasion Through Cryptocurrencies
Sanctions evasion is not just a cryptocurrency problem. Evasion
techniques such as “wire stripping” to remove
sanctioned-country information from wire transfer details have been
occurring for decades. Even within the Russia context, OFAC
confirms that “[s]anctioned Russian persons are known to
employ a wide variety of measures in their efforts to evade U.S.
and international sanctions” and alerts U.S. Persons that
process or facilitate gold-related transactions to be vigilant due
to circumvention risks.16 The problem has also been
recognized by international parties—a “Red Alert”
issued by the UK National Crime Agency, National Economic Crime
Centre, and HM Treasury Office of Financial Sanctions
Implementation noted that “it is likely that DPs [Designated
Persons] will explore alternative payment methods, including the
use of crypto-assets, to move funds to circumvent sanctions and
mitigate reduced access to the SWIFT payment
In addition, using cryptocurrency to evade sanctions is not a
newfound fear as a result of Russia’s invasion of Ukraine. For
example, several years ago, Venezuela’s creation of the
“petro” digital currency sparked conversation and concern
regarding its use to evade sanctions, ultimately resulting in a
March 2018 Executive Order prohibiting U.S. Persons from dealing in
Venezuela-related digital coins and tokens.18 Likewise,
on May 6, 2022, OFAC sanctioned virtual currency mixer Blender.io
(“Blender”), which “indiscriminately facilitate[d]
illicit transactions by obfuscating their origin, destination, and
counterparties” and was used by North Korea to launder over
US$20 million in stolen virtual currency from a sanctioned
state-sponsored cyber-hacking group’s US$620 million virtual
Although certain actors may exploit cryptocurrencies to evade
sanctions, it is not clear how often that has occurred thus far.
For example, a Congressional Research Service report from February
2018 stated, “According to Treasury officials, . . . sanctions
evasion risks posed by virtual currencies have been limited in
practice.”20 Just last month, the FinCEN reported
that it had “not seen widespread evasion of [U.S.] sanctions
using methods such as cryptocurrency.”21
Nonetheless, the U.S. government appears to be hyper-focused on
controlling the space and prosecuting persons that evade sanctions
using cryptocurrencies. For example, even prior to Russia’s
invasion of Ukraine, U.S. regulatory talking heads criticized the
use of cryptocurrencies as a sanctions-evasion tool.22
Furthermore, in October 2020, the DOJ’s Cyber Digital Task
Force published its Cryptocurrency Enforcement
Framework,23 in which the DOJ stated that
“cryptocurrency presents a troubling new opportunity for
individuals and rogue states to avoid international sanctions and
to undermine traditional financial markets, thereby harming the
interests of the United States and its
Since Russia’s invasion of Ukraine, the U.S. government has
continued to pick up speed and build efforts to enforce sanctions
and control sanctions evasion. For example, only six days after
Russia’s invasion of Ukraine, Attorney General Merrick B.
Garland announced the launch of an interagency law enforcement
group—Task Force KleptoCapture—”dedicated to
enforcing the sweeping sanctions, export restrictions, and economic
countermeasures that the United States has imposed, along with
allies and partners, in response to Russia’s unprovoked
military invasion of Ukraine.”25Among other items,
the “mission” of the task force includes
“[t]argeting efforts to use cryptocurrency to evade U.S.
sanctions, launder proceeds of foreign corruption, or evade U.S.
responses to Russian military aggression.”26 The
same day, U.S. Senators Elizabeth Warren, Mark Warner, Sherrod
Brown, and Jack Reed sent a letter to the Secretary of the Treasury
expressing concerns about the sanctions enforcement challenges for
digital-asset transactions, specifically citing the growing
magnitude of transactions in cryptocurrencies, the decentralized
nature of the assets, the policies and statements of various U.S.
agencies, and other factors. The letter requested information on
Treasury’s plans to enforce U.S. laws and sanctions related to
cryptocurrency, including working with foreign governments and the
international banking community, specific enforcement challenges,
new issues related to decentralized finance, and specific needs for
enforcement.27 Finally, in May, a federal magistrate
judge in the United States District Court for the District of
Columbia issued an unsealed opinion which revealed that the DOJ may
be criminally prosecuting a U.S. Person for evading sanctions via
cryptocurrency, including potentially Russia sanctions, among
others.28 This case has been described as “the
first U.S. criminal prosecution targeting solely the use of
cryptocurrency in a sanctions case.”29
4. Existing Guidance for Financial Institutions and
Crypto-Related Companies re Russia Sanctions Evasion via
As noted above, U.S. sanctions apply to all U.S.
Persons—whether individuals or companies—regardless of
the industry or business type. In addition, sanctions are strict
liability, meaning there is no knowledge requirement, and even
persons that accidentally or unknowingly engage in transactions
with prohibited parties—such as SDNs—may be subject to
enforcement action including financial penalties and reputational
risks. This is particularly a concern with respect to recent U.S.
sanctions on Russia (1) due to Russia’s presence in the world
market, including the fact that many U.S. Persons had operations or
business in Russia, and (2) as the sanctions have been swift,
robust, and complex.
Considering the heightened risk of Russia sanctions
evasion—including through the use of
cryptocurrencies—financial institutions, crypto markets and
exchanges, and other persons and individuals subject to U.S.
jurisdiction or doing business with U.S. Persons should consider
taking extra precautions to avoid prohibited transactions or
parties. That said, Treasury has thus far published only a few
items with respect to this matter:
- Although not specifically related to Russian sanctions evasion,
in October 2021 OFAC published its “Sanctions Compliance Guidance for the Virtual
Currency Industry,” stating that the “virtual
currency industry, including technology companies, exchangers,
administrators, miners, wallet providers, and users, plays an
increasingly critical role in preventing sanctioned persons from
exploiting virtual currencies to evade sanctions and undermine U.S.
foreign policy and national security interests.” This guidance
document may be helpful for virtual currency entities that are
generally new to the sanctions space.
- OFAC also issued an FAQ on March 11, 2022, stating that
“sanctioned Russian persons are known to employ a wide variety
of measures in their efforts to evade U.S. and international
sanctions” and reminding U.S. Persons, “including firms
that process virtual currency transactions,” to “be
vigilant against attempts to circumvent OFAC regulations and [that
they] must take risk-based steps to ensure they do not engage in
prohibited transactions.”30 The FAQ emphasizes that
OFAC regulations apply to U.S. Persons wherever located, including
those involved in or undertaking virtual currency transactions.
That said, this FAQ is clearly more of an alert than practical
- On March 7, 2022, FinCEN issued an alert advising all financial
institutions to be vigilant against attempts to evade economic
sanctions and other U.S.-imposed restrictions related to the
Russian invasion of Ukraine.31 FinCEN noted in its alert
that “sanctioned Russian and Belarusian actors may seek to
evade sanctions through various means, including through
non-sanctioned Russian and Belarusian financial institutions and
financial institutions in third countries” and that
“[s]anctions evasion activities could be conducted by a
variety of actors, including CVC exchangers and administrators
within or outside Russia, that retain at least some access to the
international financial system.”32 FinCEN’s
alert provides examples of red flags for sanctions-evasion
attempts, including sanctions-evasion attempts using CVC such as
(1) transactions initiated from high-risk IP addresses, including
from locations in Russia, (2) transactions connected to CVC
addressed on OFAC’s SDN List, and (3) a customer using a CVC
exchanger or foreign-located money services business in a high-risk
5. Compliance Tips to Consider
Although there have been several warnings about Russia sanctions
evasion using cryptocurrencies, the guidance for U.S. Persons has
been fairly limited. That said, there are a few things U.S. Persons
can actively do to avoid engaging in a sanctions violation,
including cryptocurrency-related sanctions-evasion
- Take a “Risk-Based Approach” to
Compliance. As noted, OFAC sanctions are strict liability.
U.S. companies, non-U.S. companies doing business in the United
States, and those otherwise aiming to comply with OFAC sanctions
are strongly encouraged to employ a “risk-based”
sanctions compliance program that is tailored to meet the
company’s size, geographic areas of operation, products,
services, customers, and counterparties. This means accounting for
the unique aspects of cryptocurrencies, detecting and reporting
suspicious activity, and minimizing the risk of
cryptocurrency-related sanctions violations.
- Meet the Elements for an Effective Sanctions Compliance
Program. OFAC’s Framework for Compliance Commitments
lists five essential elements of an effective sanctions compliance
program: (1) management commitment, (2) a risk assessment, (3)
internal controls, (4) testing and auditing, and (5) training. The
Framework expands on each of these areas and should be considered
- “Know Your Customer.” Even if you
are not engaged in business as a financial institution, companies
dealing in cryptocurrency and other digital assets should
prioritize strong know-your-customer (“KYC”) procedures.
In understanding who your customer is, you will better be able to
identify unusual activity that may be indicative of sanctions
- Collect Beneficial Owner Information. Given
OFAC’s 50 Percent Rule, if a company is owned 50% or more by an
SDN, whether individually or in the aggregate, it will be blocked.
Delving into ownership information can be a complicated task given
complex ownership structures commonly found within Russian
- Look to FinCEN’s March 2020 Alert. Again,
even non-financial institutions may benefit from FinCEN’s March
2020 alert regarding sanctions evasion. Several red flags provided
may be helpful, applicable, or otherwise instructive to your
- Reach out to us! Russia sanctions can be
extremely complicated and nuanced. We are here to help with all of
your sanctions and crypto-related compliance needs.
Winston & Strawn continues to monitor the quickly changing
situation with an interdisciplinary group of lawyers with expertise
in trade, sanctions, financial services, and cryptocurrency, and
will continue to provide updates and client alerts on new
developments. If you would like to be added to our mailing list for
client alerts or have questions about specific transactions, please
contact the authors or your Winston relationship partner.
1. The White House, FACT SHEET: United States, G7 and EU
Impose Severe and Immediate Costs on Russia (Apr. 6, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/06/fact-sheet-united-states-g7-and-eu-impose-severe-and-immediate-costs-on-russia/.
2. Dep’t of Treasury, Press Releases: Treasury
Targets Sanctions Evasion Networks and Russian Technology Companies
Enabling Putin’s War (Mar. 31, 2022), https://home.treasury.gov/news/press-releases/jy0692.
3. Defined under Russia-related executive orders to
include any United States citizen, lawful permanent resident,
entity organized under the laws of the United States or any
jurisdiction within the United States (including foreign branches),
or person in the United States. See, e.g., Exec. Order
14024, Blocking Property With Respect To Specified Harmful Foreign
Activities of the Government of the Russian Federation, 86 Fed.
Reg. 20249 (Apr. 18, 2021).
4. Dep’t of Treasury, Press Releases: U.S. treasury
Designates Facilitators of Russian Sanctions Evasion (Apr. 20,
5. See, e.g., Exec. Order 14024, supra
6. See Dep’t of Treasury, Frequently Asked
Questions 497 (Jan. 12, 2017), https://home.treasury.gov/policy-issues/financial-sanctions/faqs/497.
7. Exec. Order 14024, supra note 3, §
8. Id. § 1(a)(vi)(B).
9. Id. § 1(a)(ii)(G).
10. The White House, supra note 1.
11. See Dep’t of Treasury, Frequently Asked
Questions 646 (Oct. 15, 2021), https://home.treasury.gov/policy-issues/financial-sanctions/faqs/646.
12. See, e.g., Exec. Order 14024, supra
note 3, § 1.
13. Dep’t of Treasury, supra note
14. See id.
15. See id.
16. See Dep’t of Treasury, Frequently Asked
Questions 1029 (June 28, 2022), https://home.treasury.gov/policy-issues/financial-sanctions/faqs/1029.
17. Nat’l Crime Agency et al., Red ALERT: Financial
Sanctions Evasion Typologies: Russian Elites and Enablers 4 (July
18. Exec. Order No. 13827, 83 Fed. Reg. 12469 (Mar. 21,
20. Congressional Research Service, Digital Currencies:
Sanctions Evasion Risks 1–3 (Feb. 8, 2018), https://crsreports.congress.gov/product/pdf/IF/IF10825/3.
21. Dep’t of Treasury, FinCEN Provides Financial
Institutions With Red Flags on Potential Russian Sanctions Evasion
Attempts (Mar. 7, 2022),
22. For example, SEC Chair Gary Gensler said that
“[t]o the extent that [cryptocurrency] is used as [a medium of
exchange], it’s often to skirt our laws with respect to …
sanctions.” Chair Gary Gensler, Remarks Before the Aspen
Security Forum (Aug. 3, 2021), https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03.
23. Dep’t of Just., Cryptocurrency Enforcement
Framework (Oct. 2020), https://www.justice.gov/archives/ag/page/file/1326061/download.
24. Id. at 51–52.
25. Dep’t of Just., Attorney General Merrick B.
Garland Announces Launch of Task Force KleptoCapture (Mar. 2,
26. See id.
27. Elizabeth Warren, Mark R. Warner, Letter to Janet
Yellen (Mar. 2, 2022), https://www.warren.senate.gov/imo/media/doc/2022.03.01%20Letter%20to%20Treasury%20re%20OFAC%20crypto%20sanctions%20enforcement.pdf.
28. In re Crim. Complaint, No. 22-MJ-067-ZMF,
2022 WL1573361 (D.D.C. May 13, 2022), https://www.dcd.uscourts.gov/sites/dcd/files/22mj00067CriminalOpinion.pdf.
29. Spencer S. Hsu, U.S. Issues Charges in First
Criminal Cryptocurrency Sanctions Case, Wash. Post (May 16,
30. Dep’t of Treasury, Frequently Asked Questions
1021 (Mar. 11, 2022), https://home.treasury.gov/policy-issues/financial-sanctions/faqs/1021.
31. Dep’t of Treasury, supra note
32. Id. at 2.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.