On Friday, the Department of Justice (“DOJ”) announced two developments: first, the release of a 66-page report, The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets (the “Report”), issued pursuant to President Biden’s March 9, 2022 Executive Order on Ensuring Responsible Development of Digital Assets. Second, the creation of the Digital Asset Coordinators Network (“DAC”), a national group of prosecutors designated as legal and technical experts in digital asset cases.
We focus here on the Report’s regulatory and legislative recommendations, which seek to significantly expand the DOJ’s ability to investigate and prosecute offenses involving digital assets. Recommendations include increasing criminal penalties, extending statutes of limitations, broadening venue provisions, strengthening government confiscation powers, and prohibiting virtual asset service providers from “preventing » the subjects of grand jury subpoenas received by vendors. The recommendations also include clarifying that the federal criminal law against maintaining an unlicensed money transmitter applies to peer-to-peer platforms that allegedly do not take custody or control of the digital asset traded; ensure that the Financial Crimes Enforcement Network (“FinCEN”) publishes a final rule expanding the application of the travel rule under the Bank Secrecy Act (“BSA”) to transfers of digital assets; and arguably expanding or clarifying that the BSA applies to platforms dealing in non-fungible tokens, or NFTs, including online auction houses and digital art galleries.
The government press release summarizes the report as addressing “how illicit actors are exploiting digital asset technologies; the challenges that digital assets pose to criminal investigations; initiatives that the Department and law enforcement agencies have put in place as part of government-wide efforts to more effectively detect, investigate, prosecute and otherwise disrupt these crimes; and recommended regulatory and legislative measures to further strengthen law enforcement’s ability to combat digital asset crimes. The report posits that there are three main categories of illicit uses of digital assets: 1) cryptocurrency as a means of payment or as a means 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 most interesting aspect of the report is its recommendations for regulatory and legislative steps, which are as potentially important as they are numerous:
- Extend laws prohibiting employees of “financial institutions” from reporting suspects whose records are being sought through a grand jury subpoena to apply to virtual asset service providers acting as money-services businesses (“MSBs”) under the BSA, and expand the anti-whistleblowing prohibition to include all criminal offenses under Title 18 (the general federal criminal code), Title 21 (the laws on drugs) and BSA.
- Amend 18 USC § 1960, which criminalizes operating money transfer businesses without a license, to increase its maximum statutory penalty from five years to ten years imprisonment, and double its maximum criminal fine of $500,000 $1 million for certain offences.
- Issue regulations or other amendments under Section 1960 to provide that peer-to-peer platforms that do not purportedly take custody or assume control of the digital asset being traded are covered ESMs per Section 1960(b)(1)(B), which requires MSBs to register with FinCEN.
- Extending the general federal criminal statute of limitations from five years to ten years for offenses involving the transfer of digital assets, “to account for the complexity of investigating digital assets.”
- Legislative or regulatory changes and international cooperation initiatives, “designed to address the challenges of collecting evidence of crimes related to digital assets[,]including laws requiring the retention of records or enhanced penalties for failure to follow due process.
- Changes to the venue provision of Title 18, or specific offense venue provisions, “that would permit prosecution in any district where the victim of a digital asset offense or other cybercrime is located” .
- Create criminal and civil forfeiture authority for commodity-related violations, and make those violations predicate offenses, or “specified unlawful activity,” for money laundering charges.
- Lifting of the $500,000 cap on administrative forfeitures involving cryptocurrencies (vs. civil or criminal forfeitures, which have no such cap).
- Improve U.S. sentencing guidelines for BSA violations, to prevent federal district courts from “deeming BSA violations as mere technical or regulatory violations not deserving of lengthy incarceration “.
- Support FinCEN in issuing a final rule amending the record keeping and travel rule regulations under the BSA as they apply to virtual currency transactions (we blogged about the proposed rule here ).
- Increased funding for technical resources specific to digital asset investigations, “including blockchain analytics tools and technical infrastructure (for example., server space, or cloud access) required to ingest and maintain potentially large and complex data and to analyze that data. »
- Increased funding to “hire and retain agents, analysts, prosecutors and other qualified attorneys essential to address existing and emerging threats to digital assets.”
In keeping with the last point above – increased funding for law enforcement personnel knowledgeable about digital assets – the DOJ also announced the creation of the new DAC network.
The DAC Network is led by the DOJ’s National Cryptocurrency Enforcement Team (NCET) and will serve as “the primary forum for DOJ prosecutors to obtain and disseminate specialized training, technical expertise, and advice.” on the Investigation and Prosecution of Crimes Related to Digital Assets”. The DAC network consists of more than 150 designated federal prosecutors from United States Attorney’s Offices nationwide and various “primary justice” offices based in Washington, DC. These designated attorneys will act as their office’s subject matter experts on legal and technical issues related to digital assets. , and will receive training in digital asset crime investigation, including drafting search and seizure warrants, cease and desist orders, criminal and civil forfeiture actions, indictments and other procedural documents. “The DAC Network will also serve as a source of information and discussion on emerging digital asset issues, such as DeFi, smart contracts, and token-based platforms, and their use in criminal activity.” The DAC network will also focus on international cooperation and managing the challenges of cross-border investigations, according to a DOJ report dated June 6, 2022, How to strengthen international law enforcement cooperation to detect, investigate and prosecute criminal activities related to digital assets.
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