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Justice Department Signals Intent to Crack Down on Crypto Crime

·4 min read
Crypto regulations, Department of Justice, DOJ, crackdown
Crypto regulations, Department of Justice, DOJ, crackdown

The Justice Department has put a band of prosecutors in charge of its crypto investigations and prosecutions.

The creation of the Digital Asset Coordinator (DAC) Network on Sept. 16 came in a report that made it clear the U.S. Department of Justice plans to coordinate crypto investigations by more than a dozen law enforcement teams from the top with a group of specially-trained prosecutors.

Led by the year-old National Cryptocurrency Enforcement Team (NCET) and modeled on two similar networks on cybersecurity and on hacking and intellectual property theft, the DAC will “ensure that the Department and its prosecutors are best positioned to combat the ever-evolving criminal uses of digital asset technology,” Assistant Attorney General Kenneth Polite Jr. of the department’s criminal division noted in the Sept. 16 announcement.

The announcement of the more than 150-strong prosecutor Network was the major announcement on the Attorney General Merrick Garland’s report on “The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets,” issued in accordance with President Biden’s executive order calling for all agencies to develop a regulatory framework for the digital assets industry, which includes cryptocurrencies, stablecoins, non-fungible tokens (NFTs) and even a potential digital dollar.

This prioritizes the need for new laws overseeing virtual asset service providers (VASP), including money services businesses, and strengthening and extending laws covering unlicensed money transmitting businesses.

It also calls for close coordination with regulatory agencies like the Securities and Exchange Commission (SEC), Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB).

Moving Money

The report also detailed five groups of legislative and regulatory actions that “could enhance efforts to disrupt, investigate, and prosecute criminal activity related to digital assets.”

This begins with three legislative priorities it has for Congress:

  • Extending the prohibition against disclosing subpoenas that traditional financial institutions work under to virtual asset service providers, including exchanges and money transmitters that act as money services businesses.

  • Strengthening the prohibition on operating an unlicensed money transmitting business, which it called “a key prosecutorial tool in digital assets cases.”

  • Increasing the statute of limitations for crimes involving digital assets from five years to 10, as well as extending “the period during which assistance requests to foreign governments toll the limitations period.”

The DAC Network

Stationed in U.S. Attorneys’ district offices and in special litigation divisions, the DAC Network will serve “as a forum for prosecutors to obtain and disseminate training, technical expertise, and guidance about the investigation and prosecution of digital asset crimes … from subject-matter expert on digital assets, serving as a first-line source of information and guidance about legal and technical matters related to these technologies.”

Aside from coordinating the investigation and prosecution of crimes and the enforcement of regulatory violations in agencies ranging from the FBI and Secret Service to the IRS-Criminal Investigation (IRS-CI) division, the “DAC Network will also serve as a source of information and discussion addressing new digital asset forms, such as [decentralized finance] DeFi, smart contracts, and token-based platforms.”

The DAC Network will also focus on the “unique international considerations of the crypto ecosystem,” advocating for and building relationships with foreign authorities to pave the way for cross-border investigations.

All Together Now

The DOJ grouped the various agencies and regulators whose digital asset activities will be coordinated by the DAC Network into nine broad groups, starting with law enforcement. This the DOJ’s own Criminal and National Security Divisions, as well as the FBI, Drug Enforcement Agency (DEA) and U.S. Marshals Service.

Next comes the Department of Homeland Security, including the Secret Service, and the Treasury Department’s IRS-CI division.

The DAC Network’s primary role will be overseeing and assisting those prosecutions. However, the report spends a great deal of space detailing the way various regulatory agencies have been involved in digital asset oversight and action.

Those agencies “have continued to take proactive steps in recent years in response to the rise of digital assets,” the report said. “It is a critical policy goal of the United States to ensure that digital assets do not undermine existing financial regulations, and to provide strong incentives for institutions and exchanges to operate within the existing digital assets-related regulatory framework.

“Regulatory agencies play a crucial, multifaceted role in meeting that policy goal.”

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