DOJ Issues "First-of-its Kind" Enforcement Framework to Address Criminal Threats Associated with Cryptocurrency
On October 8, 2020, the Cyber-Digital Task Force of the Department of Justice released a report titled "Cryptocurrency: An Enforcement Framework" (Framework) that addresses cryptocurrency-related crime and enforcement initiatives by DOJ and its federal partners. The Framework is the second report published by the Cyber-Digital Task Force, which was established by Attorney General Sessions in February 2018 to analyze the "many ways that the Department is combatting the global cyber threat, and . . . identify how federal law enforcement can more effectively accomplish its mission in this vital and evolving area."
Attorney General Barr described the new report as a "cohesive, first-of-its kind framework for those seeking to understand federal enforcement priorities in this growing space." Among its findings, the Framework states that cryptocurrency, despite its relative infancy, "already plays a role in many of the most significant criminal and national security threats our nation faces." The Framework makes clear that DOJ is combatting this burgeoning threat on multiple fronts, targeting both traditional cybercriminals as well as legitimate entities that deal in cryptocurrency but fail to maintain sufficient compliance programs to detect and deter illicit conduct.
Summary of the Enforcement Framework
The Framework is organized into three sections. Part I examines the threat of cryptocurrency-related crime, and explains that it generally falls into three categories: (1) financial transactions associated with the commission of crimes; (2) money laundering to shield legitimate activity from tax, reporting, or legal requirements; and (3) crimes perpetrated against the cryptocurrency marketplace itself. Throughout the Framework, there are numerous profiles of recent enforcement actions by DOJ and its federal partners in each of these categories.
Part II highlights DOJ's close and cooperative partnerships with other federal agencies—including the Securities and Exchange Commission, the Department of the Treasury (FinCEN, OFAC, and IRS), and the Commodity Futures Trading Commission—to bring criminal and civil actions. It also describes DOJ's efforts to coordinate with overseas partners on international regulatory and criminal enforcement initiatives, something the DOJ has recognized as important given the dispersed and extraterritorial nature of illicit activity related to cryptocurrency.
Part III concludes with a discussion of the ongoing challenges that the government faces in combatting crimes involving cryptocurrency.
One notable aspect of the Framework is DOJ's warning that enforcement is focused not only against those who perpetrate illicit schemes involving cryptocurrency, but also against "individuals and companies that have failed to meet their legal obligations to counter illicit activity." The Framework specifically identifies, for example, money services businesses (i.e., individuals or entities that offer money transmitting services involving virtual assets, such as cryptocurrency exchanges and kiosks, as well as certain issuers, exchangers, and brokers of virtual assets) and virtual asset service providers (i.e., entities engaged in the exchange, transfer, or safekeeping of virtual assets, or the provision of financial services related to an issuer's offer or sale of virtual asset) as entities that are subject to anti-money laundering (AML) and combating the financing of terrorism (CFT) obligations, as well as to the provisions of the Bank Secrecy Act (BSA) and its implementing regulations. Failure to comply with these obligations, or misuse of cryptocurrency, may subject these entities to enforcement actions.
Perhaps most instructive to cryptocurrency industry participants or otherwise interested individuals and entities is the Framework's discussion of forward-looking response strategies. For example, the Framework discusses DOJ's authority to prosecute individuals and entities outside the United States whenever "virtual asset transactions touch financial, data storage, or other computer systems within the United States." Likewise, DOJ asserts that it can prosecute foreign-located actors who use cryptocurrency to import illegal products or contraband into the US, use US-based financial institutions for money laundering purposes, or provide illicit services to defraud or steal from US residents. Other response strategies detailed include DOJ's plans to promote law enforcement awareness and expertise in this area, coordinate with state attorneys general offices and regulatory agencies, enhance international cooperation, and collaborate with private-sector participants. In short, DOJ is committed to an "all-tools approach to dealing with cryptocurrency-related crime."
For questions about cryptocurrency enforcement, AML, CFT, or BSA compliance, or broader white collar investigations and compliance issues, please reach out to the authors or any of their colleagues in Arnold & Porter's Financial Services or White Collar Defense & Investigations practice groups.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.