Thread by @propelforward

Important questions for those who may have received blocked property in a #grief #spray #spam attack from blocked #tornadocash #ETH addrsses remain unanswered. #OFAC may give clarity in an FAQ; are a few questions that would be helpful for OFAC to address.1st some background/1

By now all of #crypto knows that #OFAC sanctioned #ETH & #USDC addresses related to #Tornadocash and service providers and many #crypto users are struggling to adapt. Why? /2

We’re dealing with a law designed to regulate legal people & entities, &their property, not quasi-autonomous code used by third parties to transact third party assets to others. Arguably the designation exceeds #OFAC’s statutory authority. That’s an argument for another day. /3

Because of #griefing/#spray attacks, many users unknowingly received blocked property from a designated addresses on the SDN List. Unfortunately, OFAC has not given these folks clarity as to what to do next. /4

Generally if a person has specific types of blocked property they are required by 31 cfr 515.205 to hold that property in an interest bearing account in a domestic bank. But Virtual Currency is not property included in 515.205 (h) So its not helpful. /5 ecfr.gov/current/title-…

Fortunately, #OFAC frequently offers FAQs home.treasury.gov/policy-issues/… that provide “ answers to questions of general applicability frequently asked by the public… [as] part of OFAC's commitment to regulatory transparency and customer service.” This IS helpful /6

So, what’s in OFAC's FAQ? According to OFAC, its FAQ “highlight key issues & topics relating to economic sanctions & the procedures and practices of OFAC ...” And there’s already significant information in the FAQ about #crypto (which it calls #virtualcurrency) /7

This makes sense given that OFAC has included #virtualcurrency public key addresses for various designated entities and persons since 2018; some of our questions DO have answers. /8 home.treasury.gov/policy-issues/…

FAQ 646 describes how to handle blocked Vitual Currency property. So a US person who holds VC that is required to be blocked must “deny all parties access” ensure they comply with OFAC regs as to “holding and reporting of blocked assets” /9

and implement controls that align with a risk based approach, as required by 31 C.F.R. 501.603 ​ OK, so far so good. /10 ecfr.gov/current/title-…

BUT- the examples given lack critical technical detail and are built around entities that control assets for third parties. The example in FAQ 646 addresses what companies that control #virtualcurrency wallets for others must do when a third party receives blocked property; /11

For those who control third party wallets, they may block each wallet that include blocked virtual currency or consolidate wallets that contain blocked virtual currency, report within 10 days and then file annual reports thereafter. /12

This works for intermediaries that have private key control over the assets of others. This doesn't work for users, or any intermediary that doesn't maintain key level control over third party wallets or assets. What about everyone else? /13

Here's where #OFAC can help us with FAQ's; below are a series of questions, the answers to which would be great to see in an FAQ: /14

How does a user who exercises key level control over their wallet and who receives blocked property into that wallet segregate that blocked property?

/15

Given that there are no banks authorized to provide “accounts” for #crypto, and that any transfer of blocked property to any intermediary would probably be rejected and would require a license, do I have to make a new wallet to segregate the blocked assets?

/16

What is a “separate account” in crypto? Is it a separate wallet with a separate private key?
/17

For a #UTXO based asset like #bitcoin, must the user segregate the specific UTXOs received from a blocked address or would any UTXO or combination of UTXOs of the same value suffice?

/18

For balance based highly fungible asset type like #ETH, where there is no identifiable #ETH in a given wallet that can be with any precision mapped back to a transaction from a given wallet, is it sufficient to segregate a equivalent quantity?

/19

If a wallet holds a type of virtual currency and later receives a transaction of that virtual currency from a blocked address, after that user segregates the blocked virtual currency, is the remaining virtual currency "untainted"?

/20

These practical, technical issues may seem esoteric but users who in good faith unintentionally or by no fault of their own received blocked property and want to comply with the law may lack sufficient guidance to understand their obligations. /21

this lack of clarity in turn has further complicated the response and compliance efforts by various third parties including service providers, all of whom want to understand what is required to comply. /22

Addressing some of these issues in an FAQ would be extremely helpful to those who received blocked property and want to comply. Hopefully we all hear more.