OFAC on Bitcoin—Learning Before Actively Regulating

International  •  OFAC  •  Regulatory Action

Before a government agency issues regulations implementing a new law—or applies existing regulations to a new technology—it has to do some groundwork.  The agency will interpret its authorizing legislation and executive orders before gathering evidence to support the exercise of its rulemaking and enforcement authorities.  Some agencies are subject to public notice-and-comment rulemaking requirements, which prolong regulatory impact.

In the case of the Office of Foreign Assets Control (OFAC), the regulations themselves are only the beginning of the analysis.  Just as important for practitioners and the OFAC-regulated industries they advise is a thicket of FAQs, interpretive guidance, general licenses, licensing policy statements, brochures, advisories, comments made in passing at conferences, industry best practices and received wisdom.  For mature industries—think financial services, insurance, or transportation—these explanatory materials fill in the gaps left between the letter of the regulations and reality of doing business in a dynamic world.

Bitcoin is not a mature industry.  And OFAC has yet to publish guidance that would make its sanctions regulations intelligible in the world of digital currency.  The silence leaves unanswered important questions.  How does one conduct due diligence on customers in an industry where the anonymity of its participants is fundamental?  How does one “block” a bitcoin account and comply with the requirements that blocked funds be placed in an interest-bearing account?  What is the appropriate compliance posture for an early-stage bitcoin-driven start-up?  As digital currency evolves to expose these interpretive gaps, we find ourselves in an era of regulatory discomfort, with an acute need for industry-specific guidance.

But while OFAC has offered no public instruction on how to square U.S. economic sanctions with digital currency, its official silence should not be interpreted to mean that OFAC is doing nothing.  The agency is conducting outreach on digital currency regulation, engaging in dialogue with other agencies and with members of the bitcoin community.  OFAC has already received voluntary self-disclosures of potential sanctions violations by bitcoin companies, which illuminate the challenges faced by this industry.

In other words, just like the rest of us, OFAC is learning.  This was confirmed at the recent OFAC Symposium in Washington, D.C., where OFAC officials revealed that digital currency regulation is under active review and that the agency desires input from those affected by its regulations.  The invitation to help in shaping this new regulatory environment should not be squandered by those who stand most to gain, or to lose, in the process.  Only by learning from experience can OFAC be expected to regulate bitcoin in ways that achieve legitimate U.S. national security and foreign policy objectives while preserving the commercial interests of this transformative new industry.

So speak up, and be prepared to give your own opinion!  OFAC wants to hear it.

Download PDF

Tagged with 

Comments are closed.