Adding to the turmoil in the cryptocurrency industry over the past year, the Justice Department has been more actively pushing criminal enforcement actions around cryptocurrency and other digital assets.
For observers of regulatory activity in this space, the DOJ’s priorities come as no surprise. Announcements in the past year by the White House and the DOJ point in the direction that resources for digital asset enforcement are only going to increase, and with it, more prosecutorial firepower aimed at bad behavior in the cryptocurrency industry.
DOJ and White House enforcement priorities are increasing risks for financial institutions involved in transmission of digital assets, prompting in-house departments to stay ahead of the compliance march.
Digital Asset Coordination
On Sept. 16, 2022, the DOJ announced a new nationwide digital asset coordinator network of federal prosecutors as part of its response to President Joe’s Biden’s March 2022 executive order.
This network will comprise more than 150 federal prosecutors in US Attorney’s offices nationwide and at various DOJ offices in Washington, D.C. These experts will develop best practices for investigating and prosecuting suspected digital assets-related crime.
In the world of blockchain, where new tokens, coins, and other digital assets are created and exchanged every day, the DOJ believes that commanding more prosecutorial resources for the development of expertise in the field will help it better identify and stop crypto criminals. Similar prosecutor networks have been deployed successfully in areas such as intellectual property crime and anti-terrorism.
The network will work with DOJ’s National Cryptocurrency Enforcement Team, established in late 2021, to bolster prosecutorial resources and develop specialized knowledge in the investigation and prosecution of cryptocurrency crime.
In addition to this initiative, the DOJ proposed three regulatory and legislative priorities for combating cryptocurrency crime.
The first priority is to amend the anti-tip-off law for financial institutions to include digital assets, which would make it a crime for officers or agents of financial institutions to tip off customers when their records are sought by law enforcement. By including digital assets in the anti-tip-off law, enforcement officials make it more difficult for customers to evade detection, gaining another arrow in their investigative quiver.
The second priority is to strengthen penalties and broaden the application of criminal laws governing operation of an unlicensed money transmitting business. This proposal would give the DOJ and other federal enforcement agencies more power to regulate and bring prosecutorial action against digital asset exchanges and other financial institutions involved in cryptocurrency transmission.
The third DOJ priority is increasing the limitations period to 10 years for all crimes that involve transfer of digital assets. This will allow the DOJ to methodically investigate complicated crypto-crime allegations.
When paired with the establishment of the DAC network, these priority proposals bolster the DOJ’s arsenal in investigating and prosecuting alleged digital asset crime, while simultaneously increasing enforcement risk for financial institutions involved in the transmission of digital assets.
White House Priorities
In parallel with the DOJ, the White House announced additional priorities for regulatory and enforcement agencies in the digital asset industry. For the Securities and Exchange Commission and the Commodity Futures Trading Commission, the Biden administration encouraged aggressive investigations and enforcement actions against alleged unlawful practices in the digital assets space.
SEC Chair Gary Gensler has already brought or settled more than 30 lawsuits related to cryptocurrencies, and we can expect more to come. For the Treasury Department, the White House committed to devoting more resources for identifying, tracking, and analyzing risks related to digital asset markets, as well as completing an illicit finance risk assessment on decentralized finance by the end of February and an assessment on non-fungible tokens by July.
The expansion of enforcement resources to combat alleged digital asset crime signals that the law is coming after cryptocurrency bad actors. As the DOJ expands the capacity of federal prosecutors and federal law enforcement agents to understand and police the digital asset industry, the cryptocurrency industry should bolster compliance by understanding the related laws and regulations and anticipating future changes that may stem from the DOJ or White House proposals.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Andrew S. Boutros is regional chair of Dechert’s white collar practice. A former federal prosecutor, he handles white collar matters, internal and cross-border investigations, and complex litigations. He is also lecturer in law at the University of Chicago Law School.
David N. Kelley is a senior partner at Dechert and former US Attorney for the Southern District of New York. He has more than three decades of experience in commercial litigation, federal securities, grand jury investigations, and congressional inquiries.
John R. (“Jay”) Schleppenbach is counsel in Dechert’s white collar practice where he represents major corporations in internal investigations and litigated matters. A former appellate prosecutor, he also served as coach to the international arbitration moot court team at Northwestern Law.