Matt Stankiewicz, Partner at The Volkov Law Group, rejoins us to discuss the DOJ’s cryptocurrency enforcement efforts.  He can be reached at [email protected].

In early October, U.S. Department of Justice (“DOJ”) Deputy Attorney General Lisa Monaco announced the creation of the National Cryptocurrency Enforcement Team (“NCET”).  The NCET will handle the Department’s investigations and enforcement actions relating to cryptocurrency and virtual assets, which has seen rapidly growing regulatory scrutiny as of recent.  The Team’s mission will be “to deter, disrupt, investigate, and prosecute criminal misuse of cryptocurrency, as well as to recover the illicit proceeds of those crimes whenever possible.”  Direct from the DOJ’s press release, the NCET will focus on the following areas:

• Investigate and prosecute cryptocurrency cases, comprising a central part of a nationwide enforcement effort to combat the use of cryptocurrency as an illicit tool.
• Develop strategic priorities for investigations and prosecutions involving cryptocurrency, in consultation with the USAOs, Department components, and investigative agencies involved in cryptocurrency investigations.
• Identify areas for increased investigative and prosecutorial focus, including professional money launderers, ransomware schemes, human traffickers, narcotics traffickers, and financial institutions working with cryptocurrency.
• Build and enhance relationships with cryptocurrency focused AUSAs and prosecutors with other Department litigating components and offices to pursue cryptocurrency investigations and prosecutions.
• Develop and maintain relationships with federal, state, local, and international law enforcement agencies that investigate and prosecute cryptocurrency cases.
• Train and advise federal prosecutors and law enforcement agencies in developing investigative and prosecutorial strategies. Such training and advice will include providing guidance concerning search and seizure warrants, restraining orders, criminal and civil forfeiture allegations, indictments, and other pleadings.
• Support the coordination and sharing of information and evidence among law enforcement offices to maximize the effectiveness of the Department’s investigations, prosecutions, and forfeitures involving cryptocurrency.
• Collaborate and build relationships with private sector actors with expertise in cryptocurrency matters to further the criminal enforcement mission.

The team will pull resources and expertise from a variety of areas, including the DOJ Criminal Division’s Money Laundering and Asset Recovery Section (MLARS) and Computer Crime and Intellectual Property Section (CCIPS), along with other sections and the various U.S. Attorney Offices as needed.  Further, the NCET will be guided by the Department’s Cryptocurrency Guidance and Enforcement Framework that it published last year.  This includes leveraging established partnerships with other regulators, such as the Securities and Exchange Commission and FinCEN. 

In a rush to go to market, many exchanges may have shirked their regulatory requirements, or simply turned a blind eye in their lust for profits.  Without necessary compliance controls centered around anti-money laundering and sanctions compliance, these services and, by extension, these technologies can be used by bad actors to circumvent critical laws and regulations.  Moreover, cryptocurrency, and Bitcoin in particular, rose to prominence off the back of Silk Road – the online marketplace that peddled various illicit goods globally.  Since the prosecution of Silk Road’s founder Ross Ulbricht, those online black markets have since fragmented and have become increasingly difficult to identify and shut down.  More resources and enforcement in that area would be beneficial. 

For the average cryptocurrency enthusiast, this news shouldn’t affect much of what he or she is doing in the space.  While there is still always some level of threat with new and emerging technologies – such as cryptocurrencies – that regulators overreact and approach, I don’t expect the DOJ to do so.  Yield farming, liquidity mining, and NFTs will generally not concern the DOJ here (though that may not be the case for other regulators).  Instead, for example, I expect the DOJ to continue its work in preventing and stopping ransomware, which is ultimately only tangentially related to cryptocurrency. 

I anticipate that the biggest area which may disrupt avid users in the decentralized finance world (“DeFi”) may be tools and protocols dealing with privacy.  As I’ve written in the past, this will still continue to be a key battleground between regulators and the cryptocurrency industry.  While there are variety of positives that come with private transactions, there are unfortunately significant downsides.  The most obvious and glaring – if you’re a bad actor doing bad things with cryptocurrency, you obviously want to stay outside the spotlight of regulators.  Privacy tools – such as mixers and tumblers – help bad actors accomplish that task.