On September 16, the United States Department of Justice (“DOJ”) issued a report on the role of law enforcement in detecting, investigating and prosecuting criminal activity related to digital assets in accordance with President Biden’s decision Executive Order on ensuring responsible development of digital assets (the “EO”). In his Press releaseThe DOJ also announced the Criminal Division’s launch of the National Digital Asset Coordinators (“DAC”) Network comprised of federal prosecutors designated by U.S. Attorney’s Offices nationwide to act as a go-to source for legal matters. and techniques related to criminal prosecution. involving digital assets.
On March 9, 2022, President Biden released the EO, which recognizes the dramatic growth of digital asset markets and technology and the need to regulate and mitigate its potential risks. The EO has asked various agencies, including the DOJ, to assess potential issues arising in the digital asset ecosystem and make appropriate recommendations on regulatory or legislative action. A more in-depth discussion of OE can be found here.
Main aspects of the report
Released in accordance with the EO, the DOJ report outlines how illicit actors are exploiting digital asset technologies, steps law enforcement is taking to combat digital asset crime, and recommendations to better improve capacity law enforcement to deal with it.
The report identifies three main categories of illicit uses of digital assets: (1) cryptocurrency as a means of payment or a way to facilitate criminal activity; (2) the use of digital assets as a means of concealing illicit financial activity; and (3) crimes involving or undermining the digital asset ecosystem.
The report continues to illustrate successful enforcement actions, such as the prosecution of cryptocurrency fraud and tax evasion stemming from cryptocurrency investment schemes. It also highlights how the DOJ has coordinated with other regulators such as the Office of Foreign Assets Control to prosecute those who use digital assets to evade sanctions.
Importantly for those following regulatory developments that may apply to the world of virtual currencies and digital assets, the report concludes by identifying some regulatory and legislative recommendations that the DOJ believes would help combat criminal activity in the digital asset ecosystem. The three main priority proposals include:
Extend anti-trick provision to virtual asset service providers. A recommendation would expand the anti-whistleblower provision, which criminalizes officers or officers of financial institutions notifying customers when their records are sought via subpoenas, to apply to virtual asset service providers that operate as businesses money services. This would mean that when such a company receives a subpoena from a third party, for example, the company would not be able to notify the customer or user of the information request.
Expanded law that criminalizes operating an unlicensed money transmitter. Another proposal recommends amending 18 USC §1960, the law that criminalizes operating a money transfer business without a license, among other things, to include platforms providing services that allow users to transfer digital assets. in a manner analogous to traditional money transfer businesses (including peer-to-peer money transfer businesses). peer platforms that profit from connecting cryptocurrency buyers and sellers). The DOJ also recommends increasing the maximum statutory penalty from five years to ten years for violating 18 USC § 1960 and increasing penalties so that individual criminal fines would double and corporate criminal fines would triple for violations involving the activities of a money transmitter of more than $1 million in a 12 month period. This would likely impact many platforms that currently consider themselves outside the scope of the definition of “money transmitter” because these platforms do not actually “touch” money (that’s that is to say, they do not take care of it).
Extension of the limitation period. Another recommendation proposes extending the statute of limitations for all crimes involving the transfer of digital aids from five to ten years due to the complexity of investigating potential crimes involving digital assets.
Other proposals include changing venue provisions to allow for prosecution in any district where the victim of a digital asset offense or other cybercrime is found, expanding confiscation powers, improving sentencing guidelines and enforcement of record keeping and travel regulations under the Bank Secrecy Act for transactions involving convertible virtual currency and digital assets.
While there is obviously no certainty or timeline as to if and when any of the recommendations outlined will actually materialize, the proposals help us to concretely understand where policymakers are heading in the regulation of digital assets.
The Network of Digital Asset Coordinators
Along with the release of the report, the DOJ also announced the Criminal Division’s launch of the National Network of Digital Asset Coordinators. The National Cryptocurrency Enforcement Team, tasked with conducting complex investigations and prosecutions of criminal misuse of digital assets, will lead the DAC. The DAC is comprised of designated federal prosecutors in U.S. Attorney’s Offices nationwide who will act as their office’s subject matter experts on digital assets. The DOJ will equip these prosecutors with the tools to apply existing authorities and laws to digital assets and teach best practices for combating criminal activity in the digital asset space. Each DAC will serve as a go-to source for legal and technical questions related to digital assets.
Take away food
Understand how potential new regulatory and legislative recommendations could affect you: In light of these recommendations and the possibility of congressional action, it is important to review these changes and determine their impact on you or your business. This may include evaluating compliance plans and potential points of contact to ensure that you are well positioned to address the areas of concern identified by the DOJ, as it requests and appears willing to impose harsher criminal penalties if of violation.
Enhanced Law Enforcement Oversight and Coordination: Additionally, the DOJ’s announcement of the DAC is another step toward its commitment to combating criminal activity related to digital assets. It builds on the creation of the National Cryptocurrency Enforcement Team and foreshadows increased enforcement efforts to root out bad actors.
Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 270