On Friday, United States District Judge Zia M. Faruqui gave the Justice Department permission to file criminal charges against an unnamed American citizen accused of sending more than $10 million worth of Bitcoin to countries under economic sanctions. This is the first time in US jurisdiction that charges have been brought in a sanctions case involving a cryptocurrency.
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The Justice Department accused the U.S. citizen of transferring more than $10 million worth of Bitcoin to virtual currency exchanges in several countries that the U.S. government has fully sanctioned, including Cuba, Iran, North Korea, Syria or Russia.
In his ruling, the judge called cryptocurrencies' reputation for providing anonymity to users a "fairy tale." He added that while some legal experts have argued that virtual currencies such as Bitcoin, Ethereum or Tether are not subject to US sanctions laws because they are created and circulated outside the traditional financial system, recent actions by the Treasury Department's Office of Foreign Assets Control require a different finding in federal courts.
Adopting The errant phrasings of The late American political commentator John McLaughlin and his long-running television show "The McLaughlin Group," Faruqui writes: "Question one: Virtual currencies are untraceable? The wrong... Question 2: Sanctions do not apply to virtual currencies? Wrong!"
Faruqui wrote in his opinion that he adopted guidance issued by the Office of Foreign Assets Control in October stating that the sanctions would also apply to transactions involving virtual currencies as well as those involving U.S. dollars or other traditional fiat currencies.
The defendants were not named in the opinion, and the case remains classified, as often happens in ongoing investigations, with the court withholding information that would identify subjects or witnesses after consulting with prosecutors.
Still, the indictment represents a new criminal sanctions enforcement action in the United States targeting cryptocurrency transactions at a time of growing concern that illegal actors can or are using the method to launder money or do business with countries that the United States has cut off from the dollar, the lifeblood of international finance.