Home Blockchain National Security in the Age of Blockchain | Oberheiden P.C.

National Security in the Age of Blockchain | Oberheiden P.C.

by Abigail Bautista

Blockchain technology has revolutionized various industries, including finance, supply chain, and healthcare. However, the implementation of blockchain also brings unprecedented challenges to national security. This not only affects the federal government but also businesses in the private sector. From cross-border transactions involving cryptocurrency governed by the Bank Secrecy Act (BSA) to foreign investments subject to the Exon-Florio Amendment and the Foreign Investment and National Security Act of 2007 (FINSA), all commercial activities involving blockchain technology could implicate the national security interests of the United States.

The intersection between national security and blockchain technology is much wider than most people realize. Businesses must understand the implications of implementing blockchain technology and executing cryptocurrency transactions. National security concerns may arise unexpectedly, and businesses must prioritize compliance to protect the interests of the country, shareholders, and themselves.

Multiple federal authorities, such as the U.S. Department of Homeland Security (DHS) and the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), have oversight in this area, and they hold businesses accountable for non-compliance.

An example of the intersection between national security and blockchain is a business that allows customers to use its online trading platform to transfer and invest in digital currencies. Although the business focuses on the domestic market, its platform does not prevent foreign entities from conducting cryptocurrency transactions. As a result, the business becomes an attractive platform for foreign parties seeking to evade detection by U.S. federal authorities. This scenario exposes the business to potential violations of OFAC sanctions and compromises national security interests.

To avoid or address the national security implications of blockchain and cryptocurrency transactions, businesses must take a proactive approach to compliance. They must understand how blockchain technology plays a role in their financial and commercial activities and identify any national security implications that may arise. Additionally, they must identify the federal statutes and regulations they need to comply with, such as the BSA, CFIUS regulations, and FINSA.

Developing a comprehensive compliance program that addresses national security implications is crucial. This may involve internal training, adopting sanctions screening software, and implementing technological safeguards. Compliance efforts should be ongoing to monitor new risks and legal developments in this rapidly evolving field.

Failure to address national security implications can result in financial risks, civil penalties, and criminal enforcement. Businesses and financial institutions must prioritize compliance to protect themselves and ensure they are not facilitating or advancing national security risks.

In conclusion, the implementation of blockchain technology presents unprecedented challenges around national security. Businesses must understand these challenges, prioritize compliance, and develop comprehensive programs to address the national security implications of using blockchain technology. By doing so, they can protect the interests of the country, their shareholders, and themselves.

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