DOJ Targets Cryptocurrency Fraud

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On October 6, 2021, the U.S. Department of Justice (“DOJ”) announced the creation of a National Cryptocurrency Enforcement Team (“NCET” or “Team”) to tackle investigations and prosecutions of criminal misuses of cryptocurrency, including crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering actors.[1] The DOJ’s announcement came on the same day that it launched its Civil Cyber-Fraud Initiative,[2] which is geared toward “emerging cyber threats” that target “sensitive information and critical systems.” The creation of the NCET also comes on the heels of continued expressions of concern and an intent to ramp up the regulation of digital assets by the U.S. Securities and Exchange Commission (“SEC”) and its Chair, Gary Gensler.[3]

Similar to recent comments by the SEC Chair, the DOJ announcement displayed a focus on cryptocurrency exchanges, noting that the NCET will seek to root out abuse on cryptocurrency platforms in an effort to promote and ensure user confidence.[4] The NCET will also focus on prosecuting criminal activity involving the use of cryptocurrencies “from being the primary demand mechanism for ransomware payments, to money laundering and the operation of illegal or unregistered money services businesses, to being the preferred means of exchange on ‘dark markets’ ....” The DOJ’s press release announcing the NCET also notes the Team’s commitment to trace and recover assets lost in criminal schemes involving cryptocurrencies.

Building on the Department’s Existing Capabilities

The Team, which will be supervised by Assistant Attorney General Kenneth A. Polite Jr., plans to draw team members from various divisions within the DOJ who possess knowledge in financial systems, blockchain technology, tracing transactions, and applicable criminal statutes.[5] The NCET will be informed by the DOJ’s Cryptocurrency Enforcement Framework and will seek to utilize different areas of expertise already present within the DOJ to “tackle complex investigations and prosecutions of criminal misuses of cryptocurrency.”[6] These areas include the DOJ Criminal Division’s Money Laundering and Asset Recovery Section and Computer Crime and Intellectual Property Section, with other experts being pulled from U.S. Attorneys’ Offices. The NCET will not only take on its own cases but additionally use its developed expertise to lend assistance and support cases brought by other divisions within the DOJ and other federal, state, local, tribal, and territorial law enforcement authorities. Polite noted, “The Criminal Division is already an established leader in investigating and prosecuting the criminal misuse of cryptocurrency,” which will allow the NCET to build on the DOJ’s already established leadership in investigating and prosecuting the fraudulent misuse, illegal laundering, and other criminal activities involving cryptocurrencies.[7]

Specifically, the NCET will be tasked with:

  • Investigating and prosecuting cryptocurrency crime;
  • Developing strategic priorities for investigations and prosecutions;
  • Identifying areas for increased investigative and prosecutorial focus, including professional money launderers, ransomware schemes, human traffickers, narcotics traffickers, and financial institutions that work with cryptocurrency;
  • Building and enhancing relationships with cryptocurrency-focused Assistant U.S. Attorneys and prosecutors;
  • Developing and maintaining relationships with federal, state, local, and international law enforcement agencies that investigate and prosecute cryptocurrency matters;
  • Training and advising federal prosecutors and law enforcement agencies in developing investigative and prosecutorial strategies;
  • Supporting the coordination and sharing of information and evidence among law enforcement officers; and
  • Collaborating and building relationships with private-sector actors with expertise in cryptocurrency matters to further the criminal enforcement mission.

Conclusion

This announcement evidences the continued push from regulators – and the DOJ in particular – to crack down on the use of cryptocurrency and blockchain technologies in criminal activity. The NCET will strengthen the DOJ’s capacity “to dismantle the financial entities that enable criminal actors to flourish – and quite frankly to profit – from abusing cryptocurrency platforms.”[8]

Companies should be on high alert that increased scrutiny from the DOJ is likely in the cryptocurrency industry. This scrutiny will likely extend not only to cryptocurrency-focused businesses, but also to companies that accept cryptocurrency as payment or conduct business with third parties engaged in cryptocurrency activities. Given the constantly changing regulatory landscape surrounding these technologies, companies should continue to evaluate compliance programs and practices to ensure that they are appropriately mitigating cryptocurrency-related risks and acting within the bounds of the law to avoid becoming the subject of a DOJ investigation or prosecution.


[1] Press Release, “Deputy Attorney General Lisa O. Monaco Announces New Cryptocurrency Enforcement Team,” Dept. of Just., Oct. 6, 2021, available at https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-national-cryptocurrency-enforcement-team.

[2] Press Release, “Deputy Attorney General Lisa O. Monaco Announces New Civil Cyber-Fraud Initiative,” Dept. of Just., Oct. 6, 2021, available at https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-civil-cyber-fraud-initiative.

[3] John J. Carney, Teresa Goody Guillén, Adam D. Gale, Jonathan A. Forman & Michelle N. Tanney, “SEC Doubles Down on Crypto Enforcement,” Aug. 9, 2021, BakerHostetler, available at https://www.bakerlaw.com/alerts/sec-doubles-down-on-crypto-enforcement.

[4] Press Release, “New Cryptocurrency Enforcement Team,” supra note 1.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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