¶ 3401
Overview
Scope of the chapter. This chapter examines two bodies of law that govern the movement of digital assets between persons: the travel rule, which requires financial institutions to collect, keep and pass on identifying information about the originator and the beneficiary of a transfer, and the economic sanctions laws, which prohibit dealings with designated persons and sanctioned places and require the blocking of property in which a designated person has an interest. Both regimes were written for bank wire transfers and correspondent accounts. Both now apply to transfers of tokens. The chapter treats the United States rules first and in most detail, then the international standard set by the Financial Action Task Force (FATF), the European Union, the United Kingdom and two Asian financial centers. The general anti-money-laundering obligations of virtual asset service providers, including registration, customer due diligence and suspicious activity reporting, are discussed in ch. 33.
Why the two regimes are treated together. The travel rule and sanctions law are separate in their sources, their regulators and their penalties. In practice they meet at the same point in a transaction: the moment a service provider decides whether to send or credit a transfer. A provider that has the originator's and beneficiary's information is in a position to screen them against sanctions lists, and a provider that lacks it cannot. The Treasury Department's Office of Foreign Assets Control (OFAC) has said that information collected for anti-money-laundering purposes may also be used in assessing sanctions risk, and its enforcement actions against digital-asset firms have turned on information the firms held and did not use. Office of Foreign Assets Control, Sanctions Compliance Guidance for the Virtual Currency Industry 13–15 (Oct. 2021) ("OFAC Virtual Currency Guidance"). ¶ 3490 describes a program that addresses both.
The difficulty peculiar to digital assets. A bank wire passes through institutions that know their customers. A token transfer passes over a public ledger that records addresses and amounts and nothing else. The information the travel rule requires does not travel with the token; it must be sent by a separate message between the service providers at each end, and only if each end is a regulated provider that can be identified. When one end is an unhosted wallet controlled by an individual, there is no counterparty institution to receive the message. Sanctions law faces the mirror image of the same problem. OFAC can list an address, but an address is not a person, and the blocking obligation attaches to property in which a designated person has an interest, a concept the Fifth Circuit held does not reach immutable code that no one owns. Van Loon v. Department of the Treasury, No. 23-50669, slip op. at 2, 22, 33 (5th Cir. Nov. 26, 2024); see ¶ 3460 infra.
The present state of the law. Three features of the law in late 2026 shape the chapter. First, the United States travel rule remains the 1995 funds-transfer rule, 31 C.F.R. § 1010.410(f), with its $3,000 threshold, applied to convertible virtual currency by FinCEN guidance; the 2020 proposal to lower the threshold for cross-border transfers to $250 has not been adopted, and FinCEN withdrew its separate 2020 unhosted-wallet proposal on October 6, 2026. Second, other major jurisdictions have adopted travel rules written for crypto-asset transfers, several with no threshold at all for transfers between service providers. Third, after the Tornado Cash litigation and the delisting of March 21, 2025, the reach of OFAC's blocking authority over software is limited by statute as the Fifth Circuit read it, while OFAC continues to designate mixers operated by identifiable persons and exchanges that serve sanctioned actors. Each point is developed below.
Organization. ¶ 3410 sets out the United States travel rule and its application to digital assets. ¶ 3420 describes the FATF standard and the practical problem of identifying and diligencing counterparty service providers. ¶ 3430 compares the European Union, United Kingdom, Singapore and Hong Kong rules. ¶ 3440 addresses unhosted wallets, the withdrawn United States proposals and the messaging arrangements providers use. ¶ 3450 turns to sanctions: the statutory framework, strict liability, the 50 percent rule and listed addresses. ¶ 3460 discusses the Tornado Cash designation and the litigation it produced. ¶ 3470 covers later designations of mixers and exchanges, the blocking and reporting obligations, stablecoin issuers and the European and British sanctions rules. ¶ 3480 reviews OFAC's enforcement actions against digital-asset firms. ¶ 3490 describes a combined compliance program and closes with a checklist.
Terminology. The chapter uses the terms of each regime where it discusses that regime. United States rules speak of a "transmittor's financial institution", a "recipient's financial institution" and "convertible virtual currency" (CVC). The FATF and most foreign rules speak of the "originator" and "beneficiary" and of "virtual asset service providers" (VASPs) or, in the European Union, "crypto-asset service providers" (CASPs). An "unhosted" or "self-hosted" wallet is a wallet whose keys are held by the user and not by a service provider. See ch. 2 ¶ 240 and ch. 9.
Who should read this chapter. Counsel to exchanges, custodians, brokers, payment processors and stablecoin issuers will find the compliance rules here. Counsel to fiduciaries and family offices will find the sanctions rules that apply to every United States person, including a trustee who holds tokens. A trustee or personal representative who receives a transfer from a listed address, or who holds tokens in which a designated person may have an interest, has the same blocking and reporting obligations as a bank. See ¶ 3470 infra.