Crypto actors face increased enforcement spurred by DOJ Network

Adding to the turmoil in the cryptocurrency industry over the past year, the Department of Justice has been more actively pushing criminal activity surrounding cryptocurrency and other digital assets.

To observers of regulatory activity in this area, the DOJ’s priorities come as no surprise. Announcements in the past year from the White House and the DOJ point to the fact that digital asset enforcement resources are only going to increase, and with it more prosecutorial authority targeting misconduct in the cryptocurrency industry.

DOJ and White House enforcement priorities increase risk for financial institutions involved in the transfer of digital assets, putting in-house departments at the forefront of the compliance march.

Digital Asset Coordination

On September 16, 2022, the DOJ announced a new nationwide network of digital asset coordinators of federal prosecutors as part of its response to President Joe Biden’s March 2022 executive order.

This network will include more than 150 federal prosecutors in US attorneys’ offices across the country and at various DOJ offices in Washington, DC. These experts will develop best practices for investigating and prosecuting suspected digital asset-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 prosecutors to develop expertise in the field will help it better identify and stop cryptocriminals. Similar prosecutorial networks have been successfully deployed in areas such as intellectual property crime and counter-terrorism.

The network will work with the DOJ’s National Cryptocurrency Enforcement Team, established in late 2021, to strengthen prosecutorial resources and develop specialized knowledge in the investigation and prosecution of cryptocurrency crimes.

Strategic priorities

In addition to this initiative, the DOJ proposed three regulatory and legislative priorities to combat cryptocurrency crime.

The first priority is to amend the Financial Institution Anti-Tip-Off Act to include digital assets, which would make it a crime for officers or agents of financial institutions to tip customers when their records are sought by law enforcement. By including digital assets in the anti-tip-off law, enforcement authorities make it more difficult for customers to avoid detection, adding another arrow to their investigative quiver.

The second priority is to strengthen the penalties and extend the application of criminal laws governing the operation of an unlicensed money transfer business. This proposal would give the DOJ and other federal enforcement agencies more power to regulate and prosecute digital asset exchanges and other financial institutions involved in the transfer of cryptocurrency.

The third DOJ priority is to increase the statute of limitations to 10 years for all crimes involving the transfer of digital assets. This will allow the DOJ to methodically investigate complex allegations of cryptocrime.

Together with the establishment of the DAC network, these priority proposals strengthen DOJ’s arsenal in investigating and prosecuting alleged digital asset crimes, while increasing enforcement risk for financial institutions involved in the transfer of digital assets.

Priorities in the White House

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 illegal practices in the digital asset space.

SEC Chairman Gary Gensler has already brought or settled more than 30 lawsuits related to cryptocurrencies, and we can expect more. For the Treasury Department, the White House has committed to devoting more resources to identifying, tracking and analyzing risks related to digital asset markets, as well as completing an illicit financial risk assessment on decentralized finance by the end of February and an assessment of non-fungible tokens by July.

The expansion of enforcement resources to combat alleged digital asset crime signals that the law is coming after bad actors in cryptocurrency. As the DOJ expands the capacity of federal prosecutors and federal law enforcement agents to understand and control the digital asset industry, the cryptocurrency industry should strengthen compliance by understanding the related laws and regulations and anticipating future changes that may stem from 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.

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Andrew S. Boutros is regional manager for Dechert’s white-collar practice. A former federal prosecutor, he handles white-collar cases, internal and cross-border investigations, and complex litigation. He is also a 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”) Schlappenbach is a lawyer in Dechert’s white-collar practice where he represents large companies in internal investigations and court cases. A former appellate attorney, he also served as a trainer for the international arbitration team at Northwestern Law.

Dechert staff member Ryan Dykhouse contributed to this article.