Crypto sanctions reduce crypto-related crime

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Chainalysis has published a report on the efficacy of OFAC adding crypto addresses to its SDN sanction list.

OFAC includes cryptocurrency addresses on its SDN list for the first time

In 2022, the U.S. Office of Foreign Assets Control (OFAC) added several cryptocurrency addresses to its Specially Designated Nationals (SDN) list, which consists of individuals and entities that have been designated as sanctioned by the U.S. government. 

This marked the first time that OFAC had included cryptocurrency addresses on the list, and the move was seen as a significant step in the agency’s efforts to combat illicit activity in the crypto space.

Chainalysis report shows significant decrease in volume of transactions associated with sanctioned entities

According to a report by blockchain analysis firm Chainalysis, the OFAC’s crypto-related designations had a noticeable impact on the level of cryptocurrency crime. The report found that the volume of cryptocurrency transactions associated with sanctioned entities decreased significantly after the OFAC designations were announced. 

Prior to the designations, the volume of transactions associated with sanctioned entities was around $90 million per month. This figure dropped to just $9 million per month after the designations were announced.

OFAC designations also impact wider crypto ecosystem and certain types of cryptocurrency crime

The report also found that the OFAC designations had a wider impact on the crypto ecosystem, as many exchanges and other service providers took steps to delist or block transactions involving the designated addresses. This led to a decrease in the overall volume of transactions involving sanctioned entities, which fell from around 1% of all crypto transactions before the designations to just 0.1% after the designations.

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The report noted that the OFAC’s actions had a particularly strong impact on certain types of cryptocurrency crime, such as ransomware attacks and darknet market activity. The volume of ransomware payments declined significantly after the OFAC designations, falling from around $6 million per month to just $200,000 per month. Similarly, the volume of transactions associated with darknet markets fell from around $1.5 million per month to just $100,000 per month.

Overall, the report suggests that the OFAC’s crypto-related designations were effective in disrupting illicit activity in the cryptocurrency space. By targeting specific addresses and entities, the agency was able to significantly reduce the volume of cryptocurrency transactions associated with sanctioned parties and disrupt the operations of many criminal groups.

Privacy coins and international cooperation remain challenges in fight against cryptocurrency crime

It is worth noting, however, that the OFAC’s designations are just one tool in the fight against cryptocurrency crime. The report notes that the use of privacy coins, which can make it difficult to trace transactions, is on the rise and continues to present a challenge for law enforcement agencies. 

Additionally, the report highlights the need for greater international cooperation in the fight against cryptocurrency crime, as many of the sanctioned entities were based in countries outside of the U.S.

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.