Chainalysis, a Web3 security firm, has recently published a report indicating that crypto-related sanctions imposed by the OFAC in 2023 surged by more than 100%. The result showed the US authorities issued warnings to a higher number of first-time offenders compared to the previous year.
The Office of Foreign Assets Control (OFAC) is a branch of the U.S. Department of the Treasury tasked with enforcing economic and trade sanctions against specific foreign countries, regimes, terrorists, and international narcotics traffickers.
Additionally, they take measures against those engaged in activities related to the proliferation of weapons of mass destruction, as well as other threats to U.S. national security, foreign policy, or economy. Through its regulations, OFAC implements and enforces these sanctions, which may include freezing assets, imposing trade restrictions, and utilizing other punitive actions.
In 2023, OFAC imposed a total of 18 sanctions, targeting individuals or entities, including those associated with cryptocurrency addresses. Chainalysis identified crypto addresses linked to entities sanctioned by OFAC, such as members of the Trickbot-related ransomware gang.
Moreover, in 2023, 61.5% of the $14.9 billion illicit transaction volume involved crypto inflows to sanctioned entities and jurisdictions, reflecting a shift in OFAC’s focus towards crypto-related sanctions compared to 2022. The agency concentrated on groups and individuals, with exceptions like the fraud shop Genesis Market and the crypto mixer Sinbad.io, as opposed to the major services targeted in 2022.
Drug-related crypto sanctions
According to Chainalysis, in the same year, there was a heightened focus on drug-related sanctions, primarily driven by the U.S. fentanyl crisis. The Office of Foreign Assets Control (OFAC) took action by imposing nine sanctions related to fentanyl, utilizing crypto addresses as identifiers in four instances.
For instance, on April 17, OFAC targeted individuals and entities in China and Latin America involved in fentanyl activities. On September 26, it sanctioned individuals associated with the illegal trafficking of fentanyl, cocaine, and methamphetamine on behalf of Mexico’s Sinaloa Cartel.
Another activity on October 3, 2023, saw OFAC-sanctioned individuals and companies in China engaged in the production and distribution of fentanyl and other drugs. Additionally, OFAC updated a designation in 2023 by adding a crypto address for the China-based chemical company Hebei Atun, previously sanctioned in 2021 for selling fentanyl precursor chemicals.
OFAC and North Korea
Another region that got a huge part of the sanctioning from OFAC in 2023 was North Korea-related firms. In 2023, OFAC imposed North Korea-related sanctions in three events. The first, on April 24, targeted China-based individuals involved in crypto money laundering supporting North Korean weapons programs.
The second, on May 23, was a joint action with South Korea against entities linked to illicit North Korean revenue schemes while the last was on November 29 where it sanctioned crypto mixer Sinbad.io for laundering millions for the North Korea-affiliated Lazarus Group.
One important trend Chainalysis revealed is that in 2023, the majority of illicit inflows were directed toward sanctioned entities and jurisdictions through cryptocurrency. This trend may be attributed to two main factors.
First, entities in heavily sanctioned areas might face restrictions in accessing traditional financial systems, leading them to turn to cryptocurrencies as an alternative to evading sanctions. Second, the challenges associated with enforcing sanctions against entities like Tornado Cash or Garantex could contribute to the increased use of crypto for illicit transactions.
Reflecting on the past and looking ahead, the security firm noted that with the increasing adoption of crypto by illicit actors, sanctioning bodies like OFAC are consistently adapting their approaches to identify and disrupt these actors and their activities.