Seychelles -- Sanctions Compliance Regulatory Overview

Seychelles, as a member of the international community and a jurisdiction committed to combating financial crime, implements a comprehensive framework for sanctions compliance, which extends to Virtual Asset Service Providers (VASPs) under its regulatory regime. While Seychelles does not originate its own specific crypto-related sanctions lists, it is legally bound to enforce international sanctions, primarily those of the United Nations, and prudently aligns with other major sanctioning bodies like OFAC and the EU due to its integration into the global financial system.

Legal Framework for Sanctions Compliance in Seychelles

The primary legal instruments governing sanctions and AML/CFT compliance in Seychelles include:

1. Virtual Asset and Service Providers Act, 2022 (VASPA 2022): This is the core legislation regulating VASPs in Seychelles, placing explicit obligations on them regarding AML/CFT and sanctions compliance.
   • Legal Reference: Virtual Asset and Service Providers Act, 2022
2. Anti-Money Laundering and Countering the Financing of Terrorism Act, 2020 (AML/CFT Act 2020): This general AML/CFT legislation applies to all designated non-financial businesses and professions (DNFBPs) and financial institutions, including VASPs, requiring them to comply with international standards.
   • Legal Reference: Anti-Money Laundering and Countering the Financing of Terrorism Act, 2020
3. United Nations (Anti-Terrorism) Act, 2001 (and related legislation): This Act provides the legal basis for implementing UN Security Council Resolutions, particularly those related to terrorism financing and proliferation. Seychelles has mechanisms to domestically implement all binding UN sanctions.
   • Legal Reference: United Nations (Anti-Terrorism) Act, 2001
4. Financial Services Authority (FSA) and Financial Intelligence Unit (FIU) Guidance: The FSA, as the primary regulator for VASPs, issues guidelines and directives to ensure compliance. The FIU Seychelles also plays a crucial role in receiving and analyzing suspicious transaction reports.
   • Legal Reference: FSA AML/CFT Framework

OFAC/EU/UN Sanctions Compliance Requirements for VASPs

Seychelles VASPs are required to:

1. UN Sanctions Compliance (Legally Binding):

   • Seychelles is a UN member state and is legally obliged to implement all UN Security Council Resolutions (UNSCRs) imposing sanctions. These resolutions target individuals, entities, and states involved in terrorism, proliferation of weapons of mass destruction (WMD), and other threats to international peace and security (e.g., DPRK, Iran, Libya, Somalia, Sudan, Afghanistan, Yemen, Mali, DRC, Central African Republic, etc.).
   • VASPs must screen all customers, beneficial owners, and transactions against the UN Sanctions List (also known as the Consolidated List) and immediately freeze assets and report any matches to the FIU.
   • Legal Reference: UN Security Council Sanctions Committees website

2. OFAC/EU Sanctions Compliance (De Facto Requirement):

   • While OFAC (U.S. Department of the Treasury's Office of Foreign Assets Control) and EU sanctions are not directly implemented as Seychelles domestic law, compliance is critical for Seychelles VASPs.
   • Risk of Secondary Sanctions: Engaging in transactions with entities or individuals sanctioned by OFAC or the EU can expose the VASP itself, its management, and its partners to significant risks, including secondary sanctions, loss of correspondent banking relationships, de-risking by international financial institutions, and reputational damage.
   • International Interoperability: To operate effectively in the global crypto ecosystem and interface with fiat banking systems, VASPs must comply with the robust sanctions regimes of major economic blocs.
   • VASPs are expected to screen against the OFAC Specially Designated Nationals (SDN) and Blocked Persons List, other OFAC sanctions lists, and the EU Consolidated List of Persons, Groups and Entities Subject to EU Financial Sanctions.
   • Legal Reference:
     • OFAC Sanctions Programs and Information
     • EU Sanctions Map

Sanctioned Entity Screening Obligations

VASPA 2022 and the AML/CFT Act 2020 mandate rigorous screening procedures for VASPs:

• Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD): VASPs must conduct thorough CDD on all customers and beneficial owners, which includes screening against sanctions lists. EDD is required for higher-risk customers or transactions.
• Ongoing Monitoring: Continuous monitoring of customer relationships and transactions to identify any changes in risk profile or potential matches against updated sanctions lists.
• Beneficial Ownership Screening: Not just the direct customer, but all ultimate beneficial owners (UBOs) must be screened.
• Transaction Screening: Real-time or near real-time screening of all transactions, including wallet addresses (where feasible and relevant for identifying sanctioned entities or geographies), for any involvement of sanctioned individuals, entities, or jurisdictions.
• Identification of PEPs: Screening for Politically Exposed Persons (PEPs) is also required as a higher-risk category.
• Technology Implementation: VASPs are expected to employ robust technological solutions for automated screening and monitoring to ensure efficiency and accuracy.

Specific to VASPA 2022:

• Section 24 (AML/CFT Obligations): This section broadly requires VASPs to comply with AML/CFT laws, regulations, and international best practices, which inherently includes sanctions compliance.
• Section 25 (Reporting of Suspicious Transactions): VASPs must report suspicious transactions, including those related to sanctions violations, to the FIU.

Geographic Restrictions

Geographic restrictions for Seychelles VASPs directly align with the territories and jurisdictions subject to UN, OFAC, and EU sanctions. This generally includes, but is not limited to:

• Democratic People's Republic of Korea (DPRK): Comprehensive sanctions covering most economic activities.
• Iran: Extensive sanctions, particularly related to nuclear proliferation and terrorism financing.
• Syria: Sanctions related to human rights abuses and terrorism.
• Cuba: U.S. embargo and related sanctions.
• Venezuela: Targeted sanctions against individuals and entities.
• Regions of Ukraine (Crimea, Donetsk, Luhansk, Zaporizhzhia, Kherson): Sanctions imposed by the U.S., EU, and others following Russian aggression.
• Myanmar: Targeted sanctions related to military government and human rights.
• Other jurisdictions or entities specifically designated on relevant sanctions lists.

VASPs must implement geographic blocking or geo-fencing measures to prevent services from being offered to individuals or entities in these sanctioned jurisdictions or involved in transactions originating from/destined for them.

Penalties for Violations

Non-compliance with sanctions regimes and AML/CFT laws in Seychelles can result in severe penalties, as outlined in VASPA 2022 and the AML/CFT Act 2020:

• Under VASPA 2022 (Part VII - Penalties):
  • Administrative Fines: The FSA can impose significant administrative penalties and fines on VASPs for breaches of their obligations, including those related to sanctions. These can range from hundreds of thousands to millions of Seychelles Rupees, depending on the severity and frequency of the violation.
  • License Revocation or Suspension: The FSA has the power to suspend or revoke a VASP's license.
  • Disqualification of Directors/Officers: Individuals found responsible for violations can be disqualified from holding positions in licensed entities.
• Under AML/CFT Act 2020:
  • Criminal Penalties: Individuals and corporate entities found in breach of AML/CFT obligations (including sanctions violations) can face substantial fines and imprisonment terms.
  • Section 36 (Offence of Money Laundering): Imprisonment for up to 15 years or a fine of up to SCR 5,000,000 (approx. USD 350,000) for individuals, or a fine of up to SCR 10,000,000 (approx. USD 700,000) for corporate bodies.
  • Section 41 (Failure to Report): Up to 5 years imprisonment or a fine of up to SCR 250,000 (approx. USD 17,500) for individuals, or up to SCR 500,000 (approx. USD 35,000) for corporate bodies.
• Under the United Nations (Anti-Terrorism) Act:
  • Violations related to financing terrorism or facilitating sanctioned activities can lead to severe criminal penalties, including lengthy imprisonment and substantial fines.

Beyond legal penalties, VASPs face significant reputational damage, loss of customer trust, and the inability to conduct business internationally if found to be non-compliant with sanctions.

Country-Specific Sanctions Lists for Crypto

Seychelles does not originate its own specific country-specific sanctions lists that apply exclusively to crypto. Its obligations are to implement the international sanctions regimes as detailed above. VASPs in Seychelles must primarily monitor and comply with:

• UN Sanctions Lists: For legally binding compliance.
• OFAC Sanctions Lists (e.g., SDN List): For critical de facto compliance and to avoid secondary sanctions and maintain international banking relationships.
• EU Sanctions Lists: For critical de facto compliance due to similar reasons as OFAC.

In summary, VASPs operating in Seychelles are subject to a robust regulatory framework that mandates strict adherence to international sanctions, particularly those of the UN, and requires proactive measures to ensure compliance with OFAC and EU sanctions to safeguard their operations and reputation within the global financial system.