Settlement with the U.S. Department of the Treasury
ShapeShift, a now-defunct cryptocurrency exchange, has reached a settlement of $750,000 with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) after facing serious violations related to economic sanctions. The Treasury revealed on Tuesday that the platform, co-founded by renowned entrepreneur Erik Voorhees in 2014, facilitated trades for individuals located in countries that are subject to U.S. sanctions—specifically Cuba, Iran, Sudan, and Syria.
Violations and Investigations
Investigators found that between December 2016 and October 2018, ShapeShift conducted over $12.5 million worth of crypto transactions involving customers from these sanctioned regions without a proper protocol in place to prevent such activities. Notably, the Treasury’s report highlighted the absence of a sanctions compliance program prior to ShapeShift receiving an administrative subpoena from OFAC, at which point they began to implement necessary compliance measures.
The Treasury also emphasized that ShapeShift should have been aware of the users’ locations based on available IP address information, which indicated that the exchange inadvertently provided economic advantages to individuals in sanction-violated jurisdictions. OFAC stated that this oversight significantly undermined the integrity of several sanctions initiatives.
Financial Penalty and Company Background
The financial penalty imposed on ShapeShift is relatively modest, attributed to the exchange’s limited resources following its closure in 2021. Originally headquartered in Denver, Colorado, with operations based in Switzerland, ShapeShift distinguished itself by allowing users to trade various cryptocurrencies without the conventional know-your-customer (KYC) vetting process required by most exchanges, thus maintaining a level of anonymity.
Challenges and SEC Investigation
The platform gained early investment from influential figures in the cryptocurrency sector, including Roger Ver, known as “Bitcoin Jesus,” and Barry Silbert, CEO of Digital Currency Group. However, ShapeShift’s challenges intensified when the Securities and Exchange Commission (SEC) investigated them for failing to register as an official broker or exchange. Subsequently, in 2022, ShapeShift was compelled to agree to a cease-and-desist order, which included a fine of $275,000 to settle related SEC allegations.
