- Poloniex settles with OFAC for $7.6 million due to multiple sanctions violations and inadequate KYC practices between 2014 and 2019.
- Over 65,000 violations were found, allowing users from sanctioned countries to execute trades worth up to $15 million.
- The exchange implemented a sanctions compliance program in 2015 but did not apply it consistently or retroactively.
Poloniex LLC, a well-known cryptocurrency exchange, has settled with the US Treasury Department’s Office of Foreign Asset Control (OFAC) for a fee of $7.6 million. The settlement comes from the exchange’s multiple sanctions violations, and improper KYC (Know Your Customer) practices between 2014 and 2019.
A History of Sanctions Violations
The OFAC announced the settlement on May 1, 2023, stating that Poloniex’s list of sanction violations dates back to 2014, when it operated an online trading and settlement platform. The exchange had accumulated over 65,000 breaches of several sanctions programs. As a result, Poloniex allowed users from sanctioned countries such as Iran, Cuba, Sudan, Crimea, and Syria to execute trades worth up to $15 million between 2014 and 2019.
According to the OFAC press release, “Poloniex trading platform allowed customers located in sanctioned jurisdictions to engage in online digital asset-related transactions—consisting of trades, deposits, and withdrawals—with a combined value of $15,335,349, despite having reason to know their location based on both Know Your Customer information and internet protocol address data.”
Inadequate Compliance Program
Poloniex commenced operations in 2014 but had a sanctions compliance program in place in May 2015. Furthermore, when the program was implemented, it was not retroactive, allowing customers from sanctioned jurisdictions already on the platform to continue using its services.
“Although Poloniex made efforts to identify and restrict accounts with a nexus to Iran, Cuba, Sudan, Crimea, and Syria under its compliance program, certain customers in these jurisdictions continued to use Poloniex’s platform to engage in online digital asset-related transactions,” stated the OFAC report.
The report also mentioned that Poloniex was a small startup when most of the alleged violations occurred, and Circle, which briefly owned Poloniex, significantly improved the exchange’s sanctions compliance issues. Both factors were considered when deciding the severity of the penalty imposed. Circle and Poloniex cooperated with the OFAC investigation, which was another factor taken into consideration.
The Settlement Amount and Previous Penalties
The maximum monetary penalty for multiple US sanctions violations is $19,692,872,800. However, the OFAC determined that the breaches on the part of Poloniex were non-egregious and not voluntarily self-disclosed. OFAC guidelines stipulated that the minimum civil monetary penalty applicable in this case be set at $99,237,000, with a settlement amount of $7,591,630.
This is not the first time Poloniex has faced penalties. The exchange previously agreed to a $10.3 million settlement with the United States Securities and Exchange Commission (SEC) in 2017. The SEC charged the firm with several violations of investor-protection clauses under Federal Securities Laws.
Poloniex is owned by a consortium of various entities, including Justin Sun, the creator of Tron, and has announced a strategic partnership with Huobi to boost its token ecosystem.
