OFAC May Add Cryptos to SDN List

| Publish date: 03/25/2018 (Last updated: March 25, 2018 01:18 PM)

Coindesk reported on Saturday that the Office of Foreign Asset Control (OFAC), may be putting digital currencies on the Specially Designated Nationals (SDN) list. This announcement could actually radically alter the entire dynamics of the cryptocurrency world.

What does this mean?

The SDN list consists of a list of individuals and entities that are linked with sanctioned governments, illegal drug trafficking, dealing in weapons of mass destruction and terrorism. Businesses and people in the US are forbidden from doing business or interacting with the people or entities listed on the SDN.

The OFAC announced last week that digital currencies whose addresses have been linked with names on the SDN list will themselves be added to the SDN list. This means that if a digital currency or crypto related organization is found to be associated with any name on the SDN list, that entity will be blacklisted.

All financial institutions will now be required to screen all digital currencies and their virtual addresses against the list provided by the OFAC. And if that asset is found to be linked to the SDN list, then the institution will be required to report, block transactions or even deny service for any transactions connected to listed addresses.

Some questions answered

This news could fundamentally change the entire crypto ecosystem if this action actually is taken. So here are answers to some of the biggest concerns.

  • Who decides which addresses will be added to the SDN list?

The Department of Treasury is the one that maintains and updates the SDN list.

  • What is an address is incorrectly added to the SDN list?

The OFAC has an appeals process that can be used in case an address is incorrectly added to the SDN list.

  • Being tainted by association

There is not much clarity in terms of what would happen if an individual or an address is tainted by association. For example, if you receive a transaction from a listed digital address, you could be tainted by association and your name and address then could also be added to the SDN list.

Right now, all that is known is that the OFAC may add digital addresses to its list. How it screens who should be added, etc. are still open questions.

  • Nodes, Miners and Lightening

While node operators may not have any obligation to screen out transactions from listed addresses, miners may have to comply with the rules that will be put in place. The same goes for Lightening Network node operators.

The biggest change if this list actually does get created is that fungibility will no longer be possible. This may cause a split in how coins are treated and also their price. Freshly minted or coins that are “clean” (read: have been traced and are not linked to any listed addresses) will be more expensive, while those that are “tainted” could be unsaleable. There could even be “grey” coins that can’t exactly be traced but don’t have any obvious connection to listed digital addresses.


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