Authorities in the United States are targeting the firms that move money for sanctioned cryptocurrency exchanges.
After sanctioning Iranian exchanges in June and August, the Treasury Department on Friday (Nov. 6) sanctioned eight Canadian currency dealers, many of which had transacted with those exchanges, according to a press release.
In a separate action Friday, the Financial Crimes Enforcement Network (FinCEN) issued a transfer ban against offshore exchange MEXC Global. FinCEN said restricting correspondent accounts alone would still leave MEXC a way to reach U.S. dollars through other foreign financial institutions.
Regulatory permission was already a concern for financial institutions weighing whether to engage with crypto. The PYMNTS Intelligence report “Credit Unions Build for Digital Money’s Next Chapter” found in September that 41% of credit union executives cited regulatory permissibility as a barrier, while 52% cited cybersecurity and fraud risk.
Friday’s actions concern payment services that financial institutions already provide. U.S. persons, including banks, must freeze and report property in their possession or control in which a designated Canadian firm has an interest. The MEXC order, once effective, bars covered U.S. institutions from sending funds to or receiving funds from the exchange and its overseas operations.
The Treasury Department named the dealers and exchanges involved in individual transactions. Two companies, one based in British Columbia and another operating in Ontario, used the name Amin Exchange. Treasury said in the release that digital asset addresses associated with Amin received funds from Shelbit, an exchange sanctioned in August. An address associated with Ontario’s Darvish Exchange transacted with four sanctioned Iranian exchanges, including Nobitex and Wallex. Several of the Canadian firms changed business names and addresses to evade detection and enforcement.
Treasury had already warned foreign financial institutions that knowingly conducting or facilitating “significant financial transactions” for designated Iranian exchanges could expose them to restrictions on U.S. correspondent accounts. The MEXC order applies directly to covered U.S. financial institutions and covers funds sent to or received from the exchange, including convertible virtual currency. It takes effect 30 days after Federal Register publication.
What Banks Can Ask About a Transfer
A foreign bank with a U.S. correspondent account can give other foreign financial institutions access to that account. The federal bank examination manual said a U.S. bank can ask its foreign customer whether it offers that access. For certain accounts subject to enhanced due diligence, the U.S. bank must determine whether such arrangements exist. Correspondent agreements can also spell out how the parties respond to information requests and what limits apply to third-party access.
The payment instruction provides a separate set of information. Under the existing Travel rule, U.S. intermediaries generally pass along specified details they receive on covered transfers of $3,000 or more. These include the sender’s name and the identities of the financial institutions at either end. Specified recipient details travel when supplied. FinCEN’s guidance said an intermediary generally has no duty under the rule to retrieve information that the preceding institution did not provide.
On Monday (Nov. 9), FinCEN and the Federal Reserve formally withdrew a 2020 proposal to lower the recordkeeping threshold from $3,000 to $250 for covered transfers that begin or end abroad. FinCEN had proposed the same reduction for the information institutions must pass along. The agencies cited changes in the crypto market and the need for fresh public comment before adopting similar amendments.
The latest measures follow earlier Treasury actions involving both crypto fraud and access to U.S. banks. As PYMNTS reported last year, Treasury sanctioned targets in the Prince Group network while FinCEN separately restricted correspondent banking access for Huione Group, a Cambodian financial services conglomerate it accused of laundering proceeds from crypto scams and thefts.
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