On October 8, 2020, the US Department of Justice (DOJ) Cyber-Digital Task Force issued an 83-page comprehensive “Cryptocurrency: An Enforcement Framework,” (Framework), signaling the DOJ’s increased focus on prosecuting crimes involving cryptocurrency.1
Cryptocurrency is a decentralized, virtual form of currency used in financial transactions that may permit users to maintain relative anonymity compared with traditional financial transactions. The Framework, which provides insight into the DOJ’s perspective and policies on cryptocurrency enforcement, addresses (1) the threats posed by cryptocurrency, (2) available cryptocurrency enforcement tools, and (3) the challenges of cryptocurrency enforcement.
First, the Framework describes three categories of activities involving the potential illicit use of cryptocurrency: “(1) financial transactions associated with the commission of crimes; (2) money laundering and the shielding of legitimate activity from tax, reporting, or other legal requirements, [and] (3) crimes, such as theft, directly implicating the cryptocurrency marketplace itself.” The guidance provides myriad examples of how cryptocurrency can be used to facilitate criminal behavior—many of which focus on the first and second categories and do not involve the cryptocurrency market directly. For example, the Framework references cryptocurrency’s sometimes role in the transport of lethal drugs, the laundering of drug cartels’ profits, violations of US sanctions programs, the financing of terrorism, and the funding of cyber-attacks.
The Framework then outlines both criminal and civil legal and regulatory tools that the US government may use to confront illegal cryptocurrency use. The DOJ explains that it may pursue—and has already pursued—criminal cryptocurrency cases using the mail fraud, securities fraud, money laundering, and failure to comply with Bank Secrecy Act requirements, among many other statutes. The Framework notes the importance of the DOJ’s cooperation with other federal agencies, such as the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Financial Crimes Enforcement Network, and the Office of Foreign Assets Control, which have the power to bring civil cryptocurrency cases and have been focused on doing so. In addition to coordinating with other federal agencies, the DOJ coordinates with state authorities and international entities, such as the Financial Action Task Force and Europol, in pursuing cryptocurrency cases.
The Framework concludes with a discussion of enforcement challenges unique to cryptocurrency cases. The guidance points to ever-evolving and complex cryptocurrency products and business models, including complications resulting from cryptocurrency exchanges that allow users to buy and sell cryptocurrency and move funds within seconds. The Framework also acknowledges certain challenges of prosecuting non-US entities and individuals engaged in illicit cryptocurrency activities while they are located outside of the United States. However, the DOJ emphasizes that it has broad “jurisdiction to prosecute the actors who direct or conduct” transactions that “touch financial, data storage, or other computer systems within the United States” or who use cryptocurrency to launder money through the United States, import illegal products or contraband, or defraud or steal from US residents.
The guidance notes that the government’s cryptocurrency enforcement efforts have been successful already, pointing to an array of criminal prosecutions and civil actions involving the use of cryptocurrency. For example, the Framework points to the indictment of an alleged operator of an online child sexual exploitation scheme coordinated using the darknet market and bitcoin, and the seizure of cryptocurrency related to terrorist financing campaigns involving al-Qaeda and ISIS. It also discusses the first-ever imposition of economic sanctions for virtual-asset-related malicious activity, and the use of federal securities laws to secure $1.2 billion in disgorgement for cryptocurrency investors.
|Eversheds Sutherland Observation: The Framework is extensive, and the guidance, along with recent enforcement actions, clearly reflects the DOJ’s continued and increasing interest in cryptocurrency’s role in a variety of illicit activities. Most importantly, the guidance demonstrates that the DOJ is using creative approaches to tackle cryptocurrency and position itself to pursue criminal actions, including extraterritorially if necessary. Financial institutions—irrespective of whether they operate within the United States—should prepare for a surge in DOJ and regulatory scrutiny of transactions involving cryptocurrency.
1 Cryptocurrency: Enforcement Framework, Report of the Attorney General’s Cyber Digital Task Force, US Department of Justice (October 8, 2020) https://www.justice.gov/ag/page/file/1326061/download.