Bitcoin and OFAC

While some regulators are struggling to fit bitcoin’s innovative peg into preexisting holes—is bitcoin a currency or a commodity or something else entirely?—the novelty of digital currencies falls squarely within the regulatory purview of some agencies. One example is the Office of Foreign Assets Control, or OFAC, the unit within the Department of the Treasury tasked with enforcing U.S. sanctions against certain countries and a long list of specific individuals, companies, and other entities.

Though numerous exceptions apply, the regulations OFAC administers broadly prohibit the provision of goods and services to individuals and entities within the countries currently under comprehensive economic sanctions (Iran, North Korea, Sudan, Syria, Cuba and—as of late last year—the Crimea Region of Ukraine) and the thousands of individuals listed as Specially Designated Nationals. Regardless of what other government agencies decide bitcoin is, transferring bitcoin to a prohibited person or entity—or providing a bitcoin-related service—is covered by OFAC’s regulations. To OFAC, providing bitcoin to a resident of Iran is no different from selling that person a vacuum cleaner.

But despite the fact that transacting with bitcoin is “nothing new” with respect to OFAC-administered sanctions, one unique aspect of bitcoin is its popular image as a currency of the internet’s dark underworld. Because individuals can transact in Bitcoin anonymously (or, more accurately, pseudonymously), bitcoin became the exchange medium of choice for the infamous website Silk Road, a market for illicit services, narcotics, and weapons. Indeed, the Washington Post once noted that bitcoin’s ascent to the national stage occurred when “Gawker explained how to use it to buy drugs.” That’s a little different from selling vacuum cleaners.

Bitcoin has vast potential as a legitimate form of exchange, and we’ve come a long way since 2011, when Senator Chuck Schumer described bitcoin as simply “an online form of money laundering used to disguise the source of money.” Today, it is accepted by many online retailers and brick-and-mortar stores and regulated by national governments around the world. By some estimates, bitcoin-related companies have received over $500 million in venture capital funding. But with OFAC’s mission to prevent terrorists, narco-traffickers, and weapons dealers from doing business with U.S. persons, it’s a safe bet that bitcoin’s early reputation with regulators will not soon be forgotten.