DOJ Releases Cryptocurrency Guidance and Enforcement Framework (Part I of II)
Matt Stankiewicz, Managing Counsel at The Volkov Law Group, rejoins us for another posting on cryptocurrency. He can be reached at firstname.lastname@example.org.
Earlier this month, the Department of Justice (“DOJ”), through its Cyber Digital Task Force (hereinafter the “Task Force”), published its 83-page crypto guidance report titled “Cryptocurrency: An Enforcement Framework.”
The Task Force, established in 2018, is tasked with evaluating threats posed by advances in technology. Among other things, an initial report highlighted cryptocurrency as an emerging threat and recommended further examination. The report is the DOJ’s most substantive take on cryptocurrency yet, and represents much needed clarity in the space. This report also follows a general global trend in increased clarity in regulatory and enforcement frameworks surrounding cryptocurrency.
The Report is divided into three parts.
Part I explains the various threats and illicit uses of cryptocurrency, grouped into three main categories: “(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.”
Part II outlines the tools at the government’s disposal to prosecute the aforementioned crimes, along with detailing its expanding partnerships with other federal regulators such as the Securities and Exchange Commission (“SEC”), Commodity Futures Trading Commission (“CFTC”), the Financial Crimes Enforcement Network (“FinCEN”), Internal Revenue Service (“IRS”), and the Office of Foreign Assets Control (“OFAC”).
Finally, Part III is more forward looking as it discusses emerging threats and some of the ongoing challenges the government is still working to grapple with.
For those still learning the basics of cryptocurrency, Part I initially provides a nice, remedial introduction. It provides a high-level, easy-to-follow overview of how the technology works. While the industry continues to evolve extremely rapidly, this section will provide enough foundational knowledge to understand the remainder of the report. Crypto is only as complex as you make it!
The report then quickly dives into the “dark side” of crypto – the various threats it can pose and the struggles of law enforcement to track and apprehend criminals utilizing cryptocurrency. The Task Force also highlights several high-profile cases involving ransomware, the darknet, human trafficking, and terrorist financing. These provide real world examples of the threats previously highlighted. The DOJ already has a long list of successful prosecutions in the crypto-world, including the takedown of Silk Road in 2013 – the infamous darknet marketplace where buyers and sellers exchanged billions of dollars’ worth of various illicit drugs for cryptocurrency. Since that time, many more have sprung up to fill the void. While the DOJ has taken down several more over the last few years, it’s becoming difficult to keep up with the expanding market.
In Part II, the Report details the legal authorities that the DOJ has used – and will continue to use – in prosecuting cases involving cryptocurrency, such as:
- Wire fraud, 18 U.S.C. § 1343
- Mail fraud, 18 U.S.C. § 1341
- Securities fraud, 15 U.S.C. §§ 78j and 78ff
- Access device fraud, 18 U.S.C. § 1029
- Identity theft and fraud, 18 U.S.C. § 1028
- Fraud and intrusions in connection with computers, 18 U.S.C. § 1030
- Illegal sale and possession of firearms, 18 U.S.C. § 921 et seq.
- Possession and distribution of counterfeit items, 18 U.S.C. § 2320
- Child exploitation activities, 18 U.S.C. § 2251 et seq.
- Possession and distribution of controlled substances, 21 U.S.C. § 841 et seq.
- Money laundering, 18 U.S.C. § 1956 et seq
- Transactions involving proceeds of illegal activity, 18 U.S.C. § 1957
- Operation of an unlicensed money transmitting business, 18 U.S.C. § 1960
- Failure to comply with Bank Secrecy Act requirements, 31 U.S.C. § 5331 et seq.
- Criminal forfeiture, 18 U.S.C. § 982; 21 U.S.C. § 853
- Civil forfeiture, 18 U.S.C. § 981.
The list is extensive, and the DOJ notes that there are still several other authorities it could explore if necessary, including laws relating to national security, espionage, or conspiracies. Further, there are still obviously various reporting, registration, and record keeping regulations surrounding financial services firms. As you can see, the legal authorities are fairly expansive and cover a wide variety of activity, and those listed still only scratch the surface. Ultimately, cryptocurrency can act as an alternative to traditional fiat currency, so really any criminal conduct that includes money exchanging hands could be used, as needed, for prosecution.
Read Part II here.