On March 31, 2023, the Office of Foreign Assets Control (OFAC) announced a $72,230.32 settlement agreement with Uphold HQ Inc. (Uphold), a global multi-asset digital trading platform, in connection with 152 apparent violations of the Iranian Transactions and Sanctions Regulations, the Cuban Assets Control Regulations, and Executive Order (E.O.) 13884. OFAC continues to focus on the virtual currency ecosystem which we have discussed here (Kraken) and here (Bittrex). This settlement provides another look at important compliance considerations for companies operating in the digital asset industry and a few practical tips.
Uphold is a digital trading platform, founded in 2014, that allows customers to move, convert, and hold currency (traditional and virtual) for foreign exchange and cross-border remittances. Uphold maintained and processed transactions for Venezuelan government employees and individuals located in Iran or Cuba in violation of U.S. sanctions.
From a practical compliance standpoint, the digital assets platform failed to review and recognize red flags in the information customers affirmatively provided during the onboarding process. During the process, customers selected a non-sanctioned country from a drop down menu for their address, but then in the free text address field, provided an address in a sanctioned country. Other customers also provided identification documents from sanctioned jurisdictions.
Uphold further identified two employees of a Venezuelan state-owned oil and natural gas company, by collecting enhanced customer diligence information, including employment information, from those who met certain predefined criteria. Uphold processed their transactions in violation of E.O. 13884. The E.O. blocks the property and interests in property of the Venezuelan government and its employees and agents.
Evaluate the Practicalities of Your Process and Data: The settlement shows how important it is to ensure the data customers provide is actually reviewed. OFAC determined that Uphold had reason to know it was processing payments in violation of sanctions when customers provided certain identification documents or addresses in the free text field (rather than the drop down menu which we presume was being checked). Once information is provided, even in an inconspicuous manner, you are on notice. Uphold now has an information technology solution to address those deficiencies.
Stay Current on Sanctions: It is critical to stay abreast of sanctions that are imposed. E.O. 13884 was issued on August 5, 2019. Uphold began to conduct enhanced due diligence on certain customers in the fall of 2021. Once Uphold collected employment information for certain customers, it did not use that information to ensure compliance with E.O. 13884 until May 2022.
Understand the Benefits of Disclosure of Remediation: While the penalty amount could have been very significant (with a statutory maximum of $44,468,494!), Uphold was able to mitigate the penalty to a lesser amount by voluntarily self-disclosing and remediating the violations. Uphold enacted numerous corrective measures including automatic restrictions to users who attempt to transfer money to sanctioned jurisdictions and real-time virtual currency wallet address screening, among others. This action highlights the benefits of disclosure, remediation and fulsome cooperation, as outlined by OFAC in the settlement.