Section 311 Action Against Huione Group: Indicator of More to Come?
In a recent enforcement action, the U.S. Financial Crimes Enforcement Network (“FinCEN”) used Section 311 of the USA PATRIOT Act’s “special measures” to exile a “network” of Cambodia-based businesses, including a crypto brokerage, from the U.S. financial system. According to FinCEN, Huione Group, “the marketplace of choice for malicious cyber actors,” laundered at least $4 billion in illicit proceeds, including $37 million worth of crypto stemming from North Korea-run cyber heists.[1]
According to FinCEN, Huione Group “set up a network of businesses, each playing a different role in its money laundering enterprise, that includes Huione Pay PLC, a payment services institution; Huione Crypto, a virtual assets service provider (VASP); and Haowang Guarantee, an online marketplace offering illicit goods and services.”[2] The network even released its own “unfreezable” stablecoin, USDH, touted to provide users the ability to “manage and use assets more freely and enjoy higher financial autonomy.”[3]
Technically, the Section 311 action represents a Notice of Proposed Rule Making. If imposed, the new Rule would prohibit U.S. persons from opening or maintaining correspondent or payable-through accounts for Huione Group. In practice, however, the effect is immediate, as all U.S. banks will immediately sever ties with Huione Group. The usual result of a Section 311 action is that the target institution is driven into liquidation within days of the announcement. Often, FinCEN does not even issue a Final Rule, but withdraws the rule proposal as moot when the target shuts down (thereby eliminating the so-called threat to the U.S. system). As a result, the merits of FinCEN’s action are not litigated.
In addition to the proposed Rule’s immediate fatal effects, targeted institutions find it difficult to dispute the accusations because Section 311, uniquely in the notice-and-comment rulemaking process, allows FinCEN to use “classified information” in promulgating a rule. Distilled, the affected institution cannot confront the information used by FinCEN to promulgate the rule, on the grounds that the information is secret. This statutory authorization creates tension with a large body of U.S. case law that otherwise requires agencies to disclose for public comment the most critical factual information underlying a proposed rule.
Although administered through different statutory frameworks (Section 311 under the USA PATRIOT Act and designations made by the U.S. Office of Foreign Assts Control (“OFAC”), a Section 311 proposed rule's effect on financial institutions and the financial system is akin to that of an OFAC designation. An OFAC designation requires U.S. persons to block any assets in which the target has a direct or indirect interest and prohibits all dealings with the target. The Section 311 action, on the other hand, cuts the target off from the U.S. financial system, but does not require freezing of assets or require all U.S. persons to cease all dealings with the target. Either way, the practical immediate effect of either action is to drive the target out of business. From the perspective of U.S. enforcement authorities, a win is a win.
This is the third time FinCEN has used a Section 311 special measure to address crypto-related activity it deemed a money laundering concern.
- In October 2023, FinCEN announced a Notice of Proposed Rule Making addressing Convertible Virtual Currency Mixing (“CVC Mixing”). That action targeted the illicit use of the “CVC ecosystem by terrorist groups, including Hamas and Palestinian Islamic Jihad.”[4] FinCEN has not issued a final rule based on the action.
- In January 2023, FinCEN used Section 9714(a) of the Combating Russian Money Laundering Act to impose a Section 311 “fifth measure” action against a “Russian-affiliated CVC exchanger” called Bitzlato Ltd.[5] By using Section 9714, as opposed to Section 311, FinCEN was able to impose the special measure immediately, without going through the rule-making process. Bitzlato’s founder, Anatoly Legkodymov, was convicted in New York federal court and served 18 months in jail.[6]
OFAC—in what it describes as a “whole-of-government” strategy to combat global threats—has also targeted “the use of digital currencies or other emerging payment systems to conduct proscribed financial transactions and evade U.S. sanctions.”[7] In previous actions, OFAC has blocked individual digital currency addresses associated with sanctioned individuals, taken enforcement actions against U.S. persons who provide cryptocurrency exchange services, including Bittrex, Inc. and Kraken, and sanctioned virtual currency mixers, such as Tornado Cash.
Why did FinCEN, as opposed to OFAC, take action against Huione Group? The answer may simply be that one agency led the investigation as opposed to another—and used the tools at its disposal. But the legal response to the Tornado Cash OFAC action may offer another explanation. Court proceedings challenging the Tornado Cash OFAC action resulted in its invalidation, and, in March 2025, OFAC removed Tornado Cash from the sanctions list.[8] To the extent Section 311 usually produces the same result, and court challenges to its application have been unsuccessful (or moot because the target was put out of business), there is reason to believe we will see more Section 311 actions going forward.
[1] https://www.fincen.gov/news/news-releases/fincen-finds-cambodia-based-huione-group-be-primary-money-laundering-concern.
[2] Id.
[3] See, e.g., https://www.binance.com/en/square/post/18938974126089.
[4] https://www.fincen.gov/news/news-releases/fincen-proposes-new-regulation-enhance-transparency-convertible-virtual-currency.
[5] https://www.fincen.gov/sites/default/files/shared/Order_Bitzlato_FINAL%20508.pdf.
[6] https://www.bloomberg.com/news/articles/2024-07-18/crypto-exchange-head-gets-no-more-jail-time-in-700-million-scam.
[7] See https://ofac.treasury.gov/faqs/561.
[8] https://home.treasury.gov/news/press-releases/sb0057.
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