Jane Khodarkovsky: $1.7 billion in crypto linked to Iran raises compliance concerns, the role of intermediaries in sanctions evasion, and the challenges of prosecuting violations | Unchained

Key takeaways

• $1.7 billion in crypto transactions linked to Iran flowed through Binance, highlighting potential sanctions violations.
• Geographic sanctions apply to countries, not necessarily to all individuals or entities within those countries.
• Sanctions evasion in crypto involves sophisticated actors, not just individuals using basic tools.
• Sanctions against Iran have created a need for intermediaries to facilitate financial transactions.
• Binance should have been more vigilant in monitoring accounts for suspicious activity related to sanctions evasion.
• OFAC’s actions can severely limit a company’s access to the US financial system, but its slow response time can be a challenge in the fast-paced crypto environment.
• Prosecuting sanctions violations is particularly challenging due to the high standard of knowledge required.
• Defamation cases are challenging because they require proof that the publisher knew the information was false.
• Binance is being held to a different standard due to its status as a centralized exchange.
• Binance is actively working to improve its reputation and compliance standards.
• Understanding the implications of crypto transactions in relation to US sanctions against Iran is crucial.
• The role of intermediaries in facilitating transactions under sanctions is significant.
• Compliance responsibilities of crypto exchanges are a major concern in the industry.

Guest intro

Jane Khodarkovsky is a Partner and Director of Compliance Advisory at Arktouros. She previously served as General Counsel and Head of Risk & Compliance at Celo Foundation, overseeing legal, regulatory, and compliance matters including sanctions, anti-money laundering, and DeFi. Prior to that, she was a Trial Attorney and Human Trafficking Finance Specialist with the Department of Justice’s Money Laundering and Asset Recovery Section, prosecuting financial crimes involving virtual currency and exchanges.

The scale of crypto transactions linked to sanctioned countries

• $1.7 billion in crypto transactions linked to Iran flowed through Binance. – Jane Khodarkovsky

• It’s a geographic sanctions that apply to the country.

  — Jane Khodarkovsky

• Understanding the implications of these transactions is crucial for compliance.
• The scale of activity associated with sanctioned countries is significant.
• There is a distinction between comprehensive and targeted sanctions.
• Sanctions are applied to countries, not necessarily all individuals within them.
• The factual assertion regarding the scale of activity is notable.
• Compliance with US sanctions is a critical concern for crypto exchanges.

Sanctions evasion and the role of intermediaries

• Sanctions evasion in crypto involves sophisticated actors. – Jane Khodarkovsky

• Iran really can’t touch the financial system they’re locked out of it.

  — Jane Khodarkovsky

• Intermediaries are needed to facilitate financial transactions for sanctioned countries.
• The complexity of sanctions evasion in crypto is significant.
• Sophisticated entities, not simplistic portrayals, are involved in evasion.
• Sanctions create structural challenges for financial systems.
• The reliance on intermediaries is a critical insight into financial dynamics under sanctions.
• Understanding the actors involved in evasion is crucial for compliance.

Compliance challenges for crypto exchanges

• Binance should have been more vigilant in monitoring accounts. – Jane Khodarkovsky

• There are allegations of a lot of flags that compliance experts should have flagged.

  — Jane Khodarkovsky

• The responsibilities of exchanges in compliance with sanctions are significant.
• Negligence in monitoring can have serious consequences.
• Exchanges are accountable for preventing illicit activities.
• Compliance challenges are a major concern in the industry.
• The potential consequences of negligence are critical to understand.
• Vigilance in monitoring is essential for compliance.

The impact of OFAC’s actions on the crypto industry

• OFAC’s actions can severely limit a company’s access to the US financial system. – Jane Khodarkovsky

• It takes a long time to act and we’re we see that with like the designation of specific crypto addresses.

  — Jane Khodarkovsky

• The slow response time of OFAC can be a challenge in the fast-paced crypto environment.
• The tension between regulatory speed and the rapid evolution of crypto is significant.
• Compliance challenges are exacerbated by OFAC’s slow response.
• The impact of OFAC’s actions on the industry is crucial to understand.
• Regulatory speed is a major concern for companies in the crypto space.
• Understanding OFAC’s role in regulating financial transactions is essential.

Legal complexities in prosecuting sanctions violations

• Prosecuting sanctions violations is particularly challenging. – Jane Khodarkovsky

• Prosecuting sanctions is actually really really difficult because it’s not strict liability.

  — Jane Khodarkovsky

• The high standard of knowledge required is a significant barrier.
• Legal standards in prosecuting financial crimes are complex.
• The implications for companies operating in the crypto space are critical.
• Understanding the legal landscape is vital for compliance.
• The complexities involved in enforcing sanctions are significant.
• The high standard of knowledge required is a major challenge.

Challenges in defamation cases

• Defamation cases are challenging because they require proof of false information. – Jane Khodarkovsky

• I think every defamation case is hard because you have to prove that someone really knew that what they were publishing was going to be false.

  — Jane Khodarkovsky

• Legal standards for defamation are complex.
• The implications for public figures are significant.
• Understanding the complexities involved in defamation cases is essential.
• The requirement for proof is a major barrier in defamation cases.
• The impact on public figures is a critical concern.
• Legal challenges in defamation cases are significant.

Regulatory challenges for centralized exchanges

• Binance is being held to a different standard due to its status as a centralized exchange. – Jane Khodarkovsky

• They’re being held to a different standard because they’re centralized.

  — Jane Khodarkovsky

• The regulatory environment for centralized exchanges is challenging.
• Centralized exchanges face significant regulatory challenges.
• Understanding the regulatory environment is crucial for compliance.
• The different standard for centralized exchanges is a major concern.
• Regulatory challenges are a significant issue in the crypto industry.
• The implications for centralized exchanges are critical.

Binance’s efforts to improve compliance

• Binance is actively working to improve its reputation and compliance standards. – Jane Khodarkovsky

• There is an argument here to be made that like finance has said we’ve turned around.

  — Jane Khodarkovsky

• Binance’s past reputation issues are being addressed.
• The company’s efforts in compliance are significant.
• Understanding Binance’s current efforts is crucial for compliance.
• The impact of past reputation issues is a critical concern.
• Binance’s operational practices are being improved.
• The company’s efforts to change its public image are notable.