Abstract
This proposal establishes a geographic and financial-crime risk policy for the Polkadot Treasury.
The objective is to ensure that Treasury funds are not knowingly exposed to jurisdictions, entities, individuals, or activities presenting an unacceptable risk of sanctions violations, money laundering, terrorist financing, narcotics trafficking, organized crime, corruption, or diversion of Treasury funds.
The policy would establish a list of Restricted Jurisdictions and Restricted Recipients and require Treasury proposals to comply with these restrictions before funds can be allocated.
Motivation
Polkadot Treasury funds are community-owned resources. Once Treasury funds leave the Treasury, there is a risk that they may be transferred through intermediaries, converted into other assets, or ultimately reach parties other than the original beneficiary.
Basic KYC or identification of the initial recipient cannot by itself guarantee that funds will not subsequently be diverted.
The Treasury should therefore apply a preventive risk-management framework rather than relying exclusively on post-payment investigations.
The United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) maintains multiple sanctions programs covering, among other matters, narcotics trafficking, terrorism and other national-security risks. OFAC’s sanctions can be comprehensive or selective.
This proposal uses internationally recognized sanctions and financial-crime risk indicators as a baseline for determining where Treasury exposure should be restricted.
Proposed Policy
Polkadot Treasury funds shall not be allocated, directly or indirectly, to:
- Individuals or entities designated under applicable OFAC sanctions programs.
- Individuals or entities controlled by, owned by, or acting on behalf of sanctioned persons or organizations.
- Projects whose primary beneficiary is located in a Restricted Jurisdiction.
- Projects whose substantial operations or expenditure of Treasury funds take place in a Restricted Jurisdiction.
- Activities involving sanctioned persons, sanctioned organizations, narcotics trafficking, terrorist financing, money laundering, or organized criminal activity.
- Any recipient where there are material and unresolved concerns that Treasury funds could be diverted to prohibited activities or sanctioned parties.
Restricted Jurisdictions
A jurisdiction may be classified as Restricted when:
- It is subject to comprehensive U.S. sanctions or equivalent international sanctions;
- It is included by FATF in its High-Risk Jurisdictions or Jurisdictions Under Increased Monitoring lists;
- FATF mutual evaluations identify material deficiencies or significant risks in the jurisdiction’s AML/CFT framework;
- Its government, financial system, or relevant institutions are subject to sanctions that materially affect the proposed activity;
- OpenGov has approved its designation as Restricted through a governance referendum; or
- The DAO determines that the financial-crime, sanctions, corruption, or diversion risk associated with the jurisdiction is incompatible with Treasury risk tolerance.
The list should be reviewed periodically and updated through a transparent governance process.
Enforcement
Treasury proposals should disclose:
- beneficiary legal name;
- beneficial ownership where applicable;
- country of incorporation;
- principal operating jurisdictions;
- destination address for Treasury funds;
- intended use of funds; and
- any relevant sanctions or financial-crime exposure.
Failure to provide sufficient information should constitute grounds for rejecting the Treasury proposal.
Where a recipient subsequently becomes subject to sanctions or otherwise violates this policy, future Treasury payments may be suspended and OpenGov may pursue recovery of remaining funds where technically and legally possible.
Review
The Restricted Jurisdictions framework should be reviewed at least annually.
Changes to the framework should be publicly documented, including the reason for adding or removing a jurisdiction.
Governance Principle
The purpose of this policy is not to make political judgments about populations or nationalities.
Its purpose is to establish a clear risk threshold for the use of community Treasury funds.
Polkadot Treasury should not be required to wait until funds have been demonstrably diverted to criminal activity before taking preventive action.
The DAO should have the ability to determine that a particular level of jurisdictional or financial-crime exposure is unacceptable for Treasury funding.