Recent analysis examining the sanctions implications of the Bitcoin mining industry in Iran draws attention to the need for companies to more carefully consider the sanctions risk associated with cryptocurrency transactions.
The analysis points out that an estimated 4.5% of all Bitcoin mining is performed in Iran where electricity tariffs are low, making the Bitcoin mining process more profitable than in other higher cost jurisdictions.
Bitcoin mining, which is the process of validating Bitcoin transactions through the solving of complex mathematical problems using specialised computer equipment, ensures the integrity of the Blockchain where Bitcoin transactions are recorded. In return, Bitcoin miners receive a small transaction fee for performing that activity. The risk manifests itself when that transaction fee is paid to a Bitcoin miner based in Iran or to another entity, jurisdiction or individual subject to sanctions.
It is a problem which is not dissimilar to that faced by companies who are hit by ransomware attacks and are considering paying the ransom in cryptocurrency to enable them to decrypt their data and IT systems. OFAC have made clear that paying a ransom, or facilitating ransomware payments on behalf of a victim, may violate OFAC regulations if for example, the recipient is in a sanctioned jurisdiction or is named on OFAC’s Specially Designated Nationals and Blocked Persons List.
The noise around potential sanction violations arising from crypto payments and transactions is getting louder - ransomware payments and transaction fees rewarding Bitcoin miners in Iran are only two examples of how sanctions could be unwittingly violated in the context of crypto transactions. Further examples are likely to emerge as OFAC and other Regulators step up the attention they are paying to this area.
A sensible first step for companies to help them comply with sanctions requirements would be to follow OFACs own advice and implement a risk-based sanctions compliance programme.
If you would like some help to implement or improve a risk-based compliance program, please contact Neal Ysart, Lead Regulatory & Investigations Advisor at neal.ysart@clydeco.com / Tel: +971 55 138 9250 or your usual Clyde & Co point of contact.
The Iranian state is therefore effectively selling its energy reserves on the global markets, using the Bitcoin mining process to bypass trade embargoes. Iran-based miners are paid directly in Bitcoin, which can then be used to pay for imports - allowing sanctions on payments through Iranian financial institutions to be circumvented.
https://www.elliptic.co/blog/how-iran-uses-bitcoin-mining-to-evade-sanctions
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