Economic sanctions against Iran have been lifted, but some sanctions still apply. A pair of attorneys at the global Pillsbury law firm claim that screening rules still exist when trading with Iran, which means complications for anyone in the U.S. and European Union (EU) doing bitcoin transactions with parties in Iran, according to City A.M., a London, U.K. newspaper.
Attorneys Steven Farmer and Matthew Oresman claim some EU and U.S. financial sanctions remain in place against certain Iranian individuals and businesses. (The lawyers are both sanctions experts and Farmer is also a bitcoin expert.) In such cases, it is necessary to screen parties in Iran when doing transactions with them. The same holds true for doing transactions with other nations under sanctions such as Russia and Syria.
Bitcoin Complicates Due Diligence
If an entity is on an asset freeze list, there is a prohibition on dealing with “economic resources” or funds controlled by that entity.
The lawyers said bitcoin complicates due diligence in such situations. “The bitcoin system does not lend itself to traditional screening processes.”
They characterized the problem as a regulatory nightmare.
Conducting business with bitcoin belonging to an entity on an asset freeze list breaches sanction laws in lieu of an appropriate license.
Buyers and sellers of bitcoin interact with encrypted identities; it is not necessary to transfer personal information when conducting a bitcoin transaction. As a result, it is hard to perform checks on counterparties when trading in bitcoin.
Due diligence is needed when doing business with a sanctioned entity to avoid big fines and possible prison terms.
How To Comply With Sanctions
The lawyers advise those using bitcoin to know how to protect themselves against risks posed by a decentralized system like bitcoin. One option is to ask counterparties to prove they own the bitcoin ID they use on the network and to provide a track record for that ID. They should also avoid dealing with counterparties that use “stealth addresses” that can hide the identity of bitcoin payer or payee.
Recent initiatives to analyze bitcoin transaction traces indicate that it could become easier to identify parties to bitcoin transactions. Directories of transactions could lessen complications for legal and compliance teams when considering the legality of bitcoin trades.
Meanwhile, bitcoin users dealing with sanctioned entities must implement robust processes to verify a counterparty’s identity and to check in advance before trading.
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Last modified: March 4, 2021 4:46 PM