EXCERPT
UK Treasury’s sanctions watchdog says British-based crypto firms are almost certainly under-reporting sanctions violations, especially via exposure to Russia’s Garantex and North-Korean cyber crews. Compliance gaps now pose strict-liability penalties and a reputational cliff. (Sources: WorldECR, assets.publishing.service.gov.uk).
KEY POINTS
- Under-reporting reality: OFSI judges it “almost certain” that crypto businesses have missed filing suspected breach reports since the August 2022 reporting mandate.
- Russia dominates: >90 % of crypto‐related breach reports involve Russian sanctions; Garantex remains the primary touch-point.
- Successor exchange alert: Kyrgyz-registered Grinex is flagged as a de-facto Garantex continuation, shifting USD 1.2 bn in stablecoins by May 2025.
- North-Korea threat vector: DPRK hackers and IT contractors are “highly likely” to be probing UK platforms right now.
- Iranian exposure: Transfers via Nobitex and affiliated rails keep Iran on OFSI’s radar.
- New benchmark: OFSI expects firms to chain-trace 3–5 hops to detect indirect sanctioned exposure—beyond prior U.K./U.S. guidance. WorldECR
- Strict liability: Lack of intent is no defence; penalties hinge on the robustness of pre-existing controls.
- Reporting lag risk: Delayed attribution = aggravating factor in enforcement calculations.
SHORT NARRATIVE
In its 34-page Cryptoassets Threat Assessment, HM Treasury’s Office of Financial Sanctions Implementation (OFSI) dissects two-and-a-half years of blockchain activity and reaches a blunt verdict: British crypto outfits are sailing blind through sanctioned waters. Since Russia’s 2022 invasion of Ukraine, exchanges and custodians have been legally obliged to flag suspected breaches. Y
et OFSI sees only a trickle of reports—most arriving after April 2024. The agency links the compliance vacuum to indirect flows through Russia’s black-listed Garantex, clone-exchange Grinex, and North-Korean cyber-raids on protocols such as Merlin Dex and Lykke. Under the UK’s strict-liability regime firms face penalties even for inadvertent exposure, unless they self-disclose and prove “sufficiently robust” controls (Sources: WorldECR, assets.publishing.service.gov.uk).
EXTENDED ANALYSIS
Legal dimension
- Strict-liability enforcement: Section 146 of the Policing and Crime Act 2017 empowers OFSI to fine regardless of intent; mitigating credit hinges on prompt, complete self-reporting. WorldECR
- Travel Rule overlay: Since Sept 2023 UK firms must attach originator and beneficiary data; failure to reconcile sanction screening across Travel Rule data sets is a latent breach multiplier. assets.publishing.service.gov.uk
Regulatory dimension
- New “3–5-hop” expectation recalibrates what “reasonable compliance” means for blockchain analytics. Firms limited to first-hop screening may now fall below supervisory baseline.
- FCA alignment: OFSI’s findings will likely feed into the FCA’s forthcoming crypto-market abuse consultation (expected Q4 2025), increasing scrutiny of exchange on-boarding and off-ramp partners.
Operational dimension
- Chain-tracing pressure: Transaction-monitoring systems must dynamically expand the depth of path analysis and integrate designation change alerts within minutes, not days.
- Look-back exercises: OFSI explicitly urges historical reviews; resourcing for specialist investigators and forensic blockchain analysts will be critical.
- Incident response playbooks: Given North-Korean intrusion patterns, SOC teams should rehearse wallet-drain scenarios and implement pre-approved freeze protocols.
ACTIONABLE INSIGHT
Immediately task your compliance team to run a 24-month retrospective scan on all counterparties linked to Garantex, Grinex, Nobitex, or DPRK-attributed addresses, following a 5-hop path depth. Document findings, file suspected-breach reports to OFSI citing “Cryptoassets Threat Assessment – 0725”, and update your sanctions risk assessment to reflect the elevated Russia/Iran/DPRK vectors.
CALL FOR INFORMATION
FinTelegram invites whistle-blowers, investigators, and industry insiders to share intelligence on successor exchanges, mixer-based evasion typologies, or unreported breaches. Share your information via our whistleblower platform, Whistle42.com.