If I Block US Users, Is It Enough for Compliance?

Maika Isogawa -

As global regulators tighten their grip on the cryptocurrency industry, many blockchain platforms and crypto dApps have taken to blocking US users to avoid compliance risks. While this approach might seem like an easy fix, the reality is far more complex. Blocking US users alone does not guarantee compliance—it’s merely one piece of a much larger puzzle.

In this article, we’ll explore why blocking US users isn’t sufficient for compliance, the challenges this approach entails, and how tools like Webacy can help you achieve a robust compliance framework.

Why Simply Blocking US Users Isn’t Enough

1. VPNs and Workarounds

Blocking US-based IP addresses doesn’t prevent users from accessing your platform. Many users leverage Virtual Private Networks (VPNs) to mask their location, making it difficult to determine where they are actually accessing your dApp from.

A recent investigation into Polymarket highlighted how VPNs bypass geo-restrictions, allowing users from restricted regions to participate in activities like trading or staking. Without additional checks, this leaves your platform vulnerable to regulatory penalties.

2. Regulatory Obligations Beyond Borders

Even if you successfully block US users, compliance goes beyond geographic restrictions. Global regulators, such as OFAC (Office of Foreign Assets Control) and the European Union, require platforms to screen all participants against sanctions lists and flag individuals or entities involved in illicit activities.

If your platform facilitates transactions involving sanctioned individuals—whether they are in the US or not—you could face significant legal consequences.

3. The Complexity of Crypto Regulations

Cryptocurrency regulations vary by jurisdiction. For example:

  • The US Commodity Futures Trading Commission (CFTC) enforces strict rules on platforms offering derivatives or prediction markets.
  • The European Union requires comprehensive anti-money laundering (AML) and know-your-customer (KYC) protocols.

Blocking users from specific regions might reduce risk, but it doesn’t address compliance requirements like transaction monitoring, sanctions screening, and behavioral analysis.

4. The Risks of Non-Compliance

Failure to implement robust compliance measures can lead to:

  • Fines and penalties: Regulatory bodies like the SEC and OFAC can impose heavy fines on platforms that fail to comply.
  • Reputation damage: Being labeled a high-risk or non-compliant platform can deter users and investors.
  • Platform shutdown: Regulators may take legal action to suspend or restrict your operations.

How to Achieve Comprehensive Compliance

To navigate the complexities of crypto compliance, platforms must implement a multi-layered approach. Here are the essential components:

1. Sanctions Screening

Screen wallet addresses and transactions against global sanctions lists to ensure that your platform isn’t facilitating illegal activities. Tools like Webacy’s Sanctions API automate this process, providing real-time risk assessments.

2. Transaction Monitoring

Monitor all on-chain activity to detect suspicious transactions or patterns that may indicate fraudulent behavior or money laundering.

3. Geo-Blocking with Advanced Filters

Combine IP-based geo-blocking with wallet-level risk analysis to ensure that restricted users cannot bypass your compliance measures using VPNs or other tools.

4. Spam and Sybil Protection

Prevent spam wallets and Sybil attacks, which are common in airdrops, token sales, and staking platforms. These wallets often create compliance risks by enabling fraudulent behavior or manipulating system incentives.

Why Webacy is the Ultimate Compliance Solution

At Webacy, we offer a suite of APIs designed to keep your platform secure, compliant, and user-friendly. Our tools go beyond simple geo-blocking to provide a comprehensive compliance framework.

Key Features of Webacy’s API Suite

  1. Sanctions Screening:
    • Identify if a wallet address appears in sanctions databases.
    • Detect malicious actors associated with scam contracts or flagged behaviors.
  2. Behavioral Risk Assessment:
    • Monitor wallet history for risky behaviors or interactions with compromised wallets.
    • Flag high-risk transactions before they occur.
  3. Spam and Sybil Filtering:
    • Block spam wallets from participating in your platform.
    • Detect and mitigate Sybil attacks that manipulate your ecosystem.
  4. Real-Time Risk Insights:
    • Receive real-time alerts and recommendations to ensure ongoing compliance.

Webacy's Use Cases for Compliance

1. Protecting dApps From Bad Actors

Webacy’s APIs enable dApps to filter and block high-risk wallets, ensuring that only legitimate users access your platform.

2. Preventing Fraud in Airdrops

By identifying spam wallets and Sybil attackers, Webacy ensures that your token distribution campaigns remain fair and compliant.

3. Ensuring Sanctions Compliance

Automatically screen all wallet interactions against global sanctions lists, reducing the risk of inadvertently facilitating illegal transactions.

4. Geo-Blocking Plus

Layer wallet-based risk assessments on top of geo-blocking to enhance the effectiveness of location restrictions.

Conclusion: Compliance Is More Than Blocking US Users

Blocking US users might seem like a quick fix, but it’s far from sufficient to meet today’s regulatory standards. Compliance in the crypto space requires a robust framework that includes sanctions screening, transaction monitoring, and behavioral analysis.

Webacy offers the tools you need to navigate these challenges effectively. By leveraging our APIs, your platform can achieve compliance while maintaining the trust of your users. Whether it’s sanctions checks, spam filtering, or Sybil protection, Webacy has you covered.

Learn More

Ready to ensure your platform stays secure and compliant? Discover Webacy’s API suite and take the first step toward comprehensive compliance today.