Crypto Firms Under Scrutiny: OFSI Flags Sanctions Compliance Risks

In July 2025, the Office of Financial Sanctions Implementation (OFSI) published a Cryptoassets Sector Threat Assessment, evaluating risks to UK financial sanctions compliance across the cryptoasset industry.

Key Judgements

Underreporting of Breaches:
Cryptoasset firms are almost certainly underreporting suspected sanctions breaches, despite handling high-risk, cross-border transactions.

Sanctions Evasion via Crypto:
Russian designated persons (DPs) are using crypto transfers to evade restrictions, often via peer-to-peer exchanges or cash conversion.

Enabler Activity:
Both professional (e.g. brokers) and personal (e.g. family) enablers help DPs move and conceal assets through crypto.

Intermediary Jurisdictions:
Over 25% of breaches involve countries with weak oversight, such as the UAE, Cyprus, and the BVI.

Obscured Ownership:
DPs use shell companies, offshore structures, and rotating wallets to mask control and ownership.

Threat Overview

Cryptoassets are increasingly used to sidestep UK sanctions, particularly by Russian DPs. Despite their role in high-risk activity, crypto firms account for a small share of total breach reports. OFSI believes many breaches go undetected or unreported due to inadequate controls and due diligence.

Strengthening Compliance

Key issues include:

• Delayed or Missing Reports: Firms often fail to report suspicious activity in time.
• Licence Misuse: Payments occur outside licence conditions or after expiry.
• Weak Wallet Screening: Insufficient tracking of wallet histories or associated entities.
• Opaque Ownership: Firms struggle to detect hidden DP involvement through complex structures.
• Threshold Evasion: DPs reduce holdings below 50% to dodge beneficial ownership checks.

Risk Indicators & Red Flags

• Crypto activity involving Russian-linked or newly created wallets
• Payments by third parties (e.g. relatives) on behalf of sanctioned individuals
• Use of mixers, privacy coins, or offshore OTC brokers
• Continued payments after licence expiry
• Disproportionate transfers with no clear source of funds

Russian DPs & Enablers

• Professional Enablers: Brokers, OTC desks, and advisers facilitating crypto access.
• Non-Professional Enablers: Family and associates disguising DP involvement or funding transactions.

Common evasion methods include disguised crypto payments, front wallets, and ownership layering through offshore entities.

Intermediary Countries

High-risk jurisdictions linked to crypto breaches include:

• Cyprus, UAE, Türkiye, Switzerland, Luxembourg
• British Virgin Islands, Cayman Islands, Guernsey, Austria

These are often used to obscure ownership, facilitate anonymous transfers, or enable unregulated crypto activity.

Conclusion

OFSI’s Cryptoassets Sector Threat Assessment highlights urgent compliance gaps. Crypto firms must improve due diligence, monitor wallet activity, and act swiftly on suspicious behaviour. Stronger controls are essential to protect the UK financial system from sanctions evasion.

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