Payward, Inc. d/b/a Kraken OFAC Settlement: $362.2K

Kraken maintained an anti-money laundering and sanctions compliance program that included screening customers at onboarding and daily thereafter, as well as review of IP address information generated at the time of onboarding to prevent users in sanctioned jurisdictions from opening accounts. However, at the time of the apparent violations, Kraken did not implement IP address blocking on transactional activity across its platform. Account holders who had established their accounts outside of sanctioned jurisdictions appear to have accessed their accounts and transacted on Kraken's platform from a sanctioned jurisdiction.

Between approximately October 14, 2015 and June 29, 2019, Kraken processed 826 transactions totaling approximately $1,680,577.10 on behalf of individuals who appeared to have been located in Iran at the time of the transactions, constituting 826 apparent violations of 31 C.F.R. § 560.204. After identifying this problem, Kraken implemented automated blocking for IP addresses linked to sanctioned jurisdictions and multiple blockchain analytics tools to assist with its sanctions monitoring.

The statutory maximum civil monetary penalty applicable in this matter is $272,228,964. OFAC determined that Kraken self-disclosed the apparent violations and that the apparent violations constitute a non-egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A, the base civil monetary penalty equals the sum of one-half of the transaction value for each apparent violation, which is $840,288.55.

The settlement amount of $362,158.70 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines. Kraken and OFAC also agreed that Kraken will spend an additional $100,000 to invest in certain additional sanctions compliance controls, including training and technical measures to assist in sanctions screening.

This case highlights the importance of using geolocation tools, including IP blocking and other location verification tools, to identify and prevent users located in sanctioned jurisdictions from engaging in prohibited virtual currency-related transactions. Limiting the use of such controls only to the time of account opening — and not throughout the lifetime of the account or with respect to subsequent transactions — could present sanctions risks to virtual currency-related companies. This case also demonstrates the value of a company implementing robust remedial measures after becoming aware of a potential sanctions issue, including the deployment of blockchain analysis tools and compliance-related training on blockchain analytics, as well as committing to future sanctions compliance investments.

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