Poloniex Settles With US Authorities, Pays $7.6M Fee To OFAC

Poloniex LLC has agreed to pay a fee of $7.6 million to settle with the US Treasury Department’s Office of Foreign Asset Control (OFAC) for violation of sanctions. 

The exchange had been scrutinized for violating multiple sanctions and not maintaining proper KYC (Know Your Customer) practices between 2014 and 2019. 

The Case Against Poloniex 

The Office of Foreign Asset Control announced the settlement on Monday. According to the sanctions watchdog, Poloniex’s list of sanction violations can be traced all the way back to 2014, when it operated an online trading and settlement platform. Poloniex had racked up over 65,000 violations of several sanctions programs. As a result, the exchange allowed users from sanctioned countries such as Iran, Cuba, Sudan, Crimea, and Syria to execute trades worth up to $15 million between 2014 and 2019, according to the OFAC press release. The press release stated, 

“Poloniex trading platform allowed customers apparently located in sanctioned jurisdictions to engage in online digital asset-related transactions—consisting of trades, deposits, and withdrawals—with a combined value of $15,335,349, despite having reason to know their location based on both Know Your Customer information and internet protocol address data.”

No Compliance Program In Place 

According to the authorities, Poloniex commenced operations in 2014. However, it did not have a sanctions compliance program in place until May 2015. Furthermore, when it put a compliance program in place, the program was not retroactive. According to documents from the Treasury Department, this allowed customers from sanctioned jurisdictions already on the platform to continue using its services. 

“Although Poloniex made efforts to identify and restrict accounts with a nexus to Iran, Cuba, Sudan, Crimea, and Syria pursuant to its compliance program, certain customers apparently located in these jurisdictions continued to use Poloniex’s platform to engage in online digital asset-related transactions.”

In its report, the Office of Foreign Asset Control stated that Poloniex was a small startup when most of the alleged violations occurred. Furthermore, it stated that Circle significantly improved the exchange’s sanctions compliance issues when it owned the company. Both were factors considered when deciding the severity of the penalty imposed. Circle and Poloniex both cooperated with the OFAC investigation, another factor that was taken into consideration. 

The Settlement 

According to the United States Treasury report, the maximum monetary penalty for the violation of multiple US sanctions is $19,692,872,800. In this case, the OFAC determined that the violations on the part of Poloniex were non-egregious and not voluntarily self-disclosed. OFAC guidelines stipulated that the minimum civil monetary penalty applicable in this case be set at $99,237,000 with a settlement amount of $7,591,630. 

Poloniex had previously agreed to a $10.3 million settlement with the United States Securities and Exchange Commission (SEC). The SEC had filed the case against Poloniex in 2017, charging the firm with several violations of investor-protection clauses under Federal Securities Laws.

A consortium of various entities currently owns Poloniex. This includes Justin Sun, the creator of Tron. The issuer of the USDC stablecoin, Circle, briefly acquired Poloniex in 2018. However, the company sold Poloniex within two years of its $400 million acquisition. Poloniex had also announced a strategic partnership with Huobi. The partnership was aimed at boosting Huobi’s token ecosystem. Incidentally, Tron creator Sun is also an advisor to Huobi. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.