Blockchain regulation continues to be the hot topic, with increasing scrutiny from government agencies at all levels. The latest comes from the New York State Department of Financial Services (DFS), which has been a leader in the field since the 2015 “BitLicense” framework under the New York Financial Services Act. . On April 28, 2022, the new DSF Superintendent Adrienne A. Harris released new guidelines encouraging cryptocurrency companies to embrace blockchain analytics tools as a best practice.
The purpose of the recommended scan tools is to combat suspicious transaction activity, including money laundering and violations of OFAC sanctions. New suggestion from DFS compliance checks appear to be a response to both the high level of criminal transactions on cryptocurrency platforms and the more recent increase in Russian attempts to evade sanctions related to the invasion of Ukraine. As FinCEN noted, the more the United States and its allies tighten sanctions against the Russian Federation, the more oligarchs and other sanctioned individuals are incentivized to place their assets in safe havens through hard-to-trace cryptocurrency transactions.
The bottom line is that today’s focus on DFS compliance will likely be tomorrow’s enforcement focus at the New York State Office of the Attorney General (OAG). DFS has the power to make criminal referrals to the OAG, and the OAG can also bring non-referral actions under New York’s blue sky laws, known as the Martin Act. OAG may seek to prosecute bad actors responsible for harboring particularly egregious money laundering violations and penalties to promote deterrence in the cryptocurrency industry.