New Dawn: Treasury Dept. Levies Bitcoin Address Sanctions
November 29, 2018 by William Peaster
In an unprecedented enforcement action, the U.S. Department of the Treasury has levied bitcoin address sanctions in a crackdown against facilitators of bitcoin-to-rial ransomware rackets in Iran. The sanctions mark the first time specific crypto addresses have essentially been “outlawed” by America’s USD minters.
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Whether Its Bitcoin, Rials, or Chuck E. Cheese Tokens, the Treasury Will Flex Its Might
On November 28th, the U.S. Treasury, specifically the department’s Office of Foreign Assets Control (OFAC), announced the sanctioning of two Iranian individuals and their associated bitcoin addresses.
The duo, Mohammad Ghorbaniyan and Ali Khorashadizadeh, had facilitated bitcoin-to-rial exchanges for the Iranian hackers behind the SamSam ransomware, at times resorting to U.S. cryptocurrency platforms to do so.
Who says Bitcoin isn’t useful? These Iranians used it to collect payments from the SamSam ransomware attacks and then illegally move it between Iranian banks and Bitcoin exchanges around the world. https://t.co/c5VYeY18gF
— Nathaniel Popper (@nathanielpopper) November 28, 2018
The rial is Iran’s domestic currency. The Treasury is the principal revenue manager for the U.S. government and is responsible for enforcing federal finance laws, USD printing and minting, tax collection, and more.
SamSam’s creators, whose software hijacked victims’ computers until a bitcoin ransom was paid, turned to Ghorbaniyan and Khorashadizadeh to convert BTC to rials. How long that arrangement was in place wasn’t immediately clear.
The sanctions announcement was prophylactic, insofar as it expressed the Treasury’s mandate that U.S. individuals and cryptocurrency enterprises refrain from dealing with the bitcoin addresses and that any funds received from them are to be frozen.
In other words, it was an all-points bulletin: transact with 1AjZPMsnmpdK2Rv9KQNfMurTXinscVro9V and 149w62rY42aZBox8fGcmqNsXUzSStKeq8C at your own peril going forward.
“These digital currency addresses should assist those in the compliance and digital currency communities in identifying transactions and funds that must be blocked and investigating any connections to these addresses,” the Treasury said.
“Regardless of whether a transaction is denominated in a digital currency or traditional fiat currency, OFAC compliance obligations are the same.”
Interestingly, the decentralized nature of the Bitcoin network means the addresses in question can’t be directly blocked or confiscated by the Treasury.
What the department has offered instead is its word — and, of course, a willingness to back that word up with the full enforcement might of the U.S. government. That can’t-but-can dynamic is one to closely track as the cryptoeconomy grows in the years ahead.
If the US Federal government wants Bitcoin full nodes to blacklist certain addresses when validating blocks and transactions, it will have to design and implement this feature themselves, and then persuade people around the world to run their software.
Very big challenge! https://t.co/9v8GOHS7Ip
— Pierre Rochard [⚡️] (@pierre_rochard) November 28, 2018
Context of Bitcoin Address Sanctions ‘Good News for Crypto,’ Says Marco Santori
In a Twitter thread on the development, Blockchain President and Chief Legal Officer Marco Santori highlighted the unprecedented context of the OFAC sanctions, arguing it was noteworthy how the office pursued the action with apparent comfort in its current legal and technical standings.
3/ The list typically contains names, categories, other lists include geographical regions. Never, though, has the list included a Bitcoin address. Until today.
— Marco Santori (@msantoriESQ) November 28, 2018
“It didn’t ask for more legislation, nor did it […] propose new prohibitions,” Santori said.
“The Treasury is fighting crypto bad guys using the tools already at its disposal.”
9/ Maybe Treasury will change its position. Maybe it will need new tools in the future. But for now we’re seeing the agency demonstrating its ability to do its job with the laws already on the books. This is good news for Crypto.
— Marco Santori (@msantoriESQ) November 28, 2018
The Blockchain exec concluded this in-bounds dynamic spelled “good news” for cryptocurrencies in general, a suggestion that the Treasury wasn’t overreacting and was approaching the episode as it would others.
What’s a Bitcoiner to Do?
Most will do nothing. And most won’t have to: the chances of everyday bitcoiners unintentionally interacting with “sanctioned” addresses is, and will remain, quite low.
Yet the inaugural OFAC bitcoin address sanctions has raised chatter in the cryptoverse as to how users and enterprises should respond.
Incidental, “downriver” transactions from sanctioned addresses could theoretically spell trouble even for unaware recipients if unanonymized, as OFAC has a wide enforcement purview. Not only that, but the office has a wide jurisdiction too.
Indeed, “it’s not just US nationals” who have been put on notice, Santori noted, as OFAC’s jurisdiction can extend to foreigners.
Open questions from today’s addition of #bitcoin addresses to the #ofac SDN list: do miners, nodes and exchanges in the US have to block transactions from those addresses? Does this suggest or require code changes?
— Drew Hinkes (@propelforward) November 28, 2018
Most cryptocurrency traders in America won’t need to do anything, as these users will typically rely on one of the nation’s top exchanges, e.g. Coinbase and Gemini, which run institutional-grade Know Your Customer (KYC) and anti-money laundering (AML) systems.
These traders are essentially shielded from openly problematic, i.e. criminally tainted, coins. And beyond exchanges, as long as users don’t directly seek out interactions with sanctioned addresses, there should be little reason for concern.
Going further toward speculation, however, there are some interesting questions in play:
- Will sanctioned addresses resort to high fees to incentivize miners?
- Will further privacy upgrades to Bitcoin obfuscate new OFAC efforts?
- Will fines be levied against individual transgressor nodes in the future?
For now, that all remains to be seen.
What’s your take on these inaugural bitcoin address sanctions? What do they represent for the cryptocurrency space? Let us know in the comments section below.
Images via Pixabay
