DOJ signals intent to crack down on cryptocrime

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

The creation of the Digital Asset Coordinator (DAC) Network on September 16 came in a report that made it clear that the US 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 based on two similar networks on cybersecurity and hacking and theft of intellectual property, the DAC will “ensure that the Department and its prosecutors are best positioned to combat the ever-evolving criminal use of digital resource technology,” Assistant State Attorney Kenneth Polite Jr. of the department’s criminal division noted in the Sept. 16 announcement.

The announcement of the more than 150-strong prosecutorial network was the main announcement of 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 requiring all agencies to develop a regulatory framework for the digital asset 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 providers (VASPs), including money service businesses, and strengthening and expanding laws covering unlicensed money transfer businesses.

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

Move money

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

This begins with three legislative priorities it has for Congress:

• Extend the prohibition against disclosing subpoenas under which traditional financial institutions operate to virtual asset service providers, including exchanges and money transmitters that act as money service businesses.
• Strengthening the ban on operating an unlicensed money transfer business, which it called “a key prosecution tool in digital asset cases.”
• Increase the statute of limitations for crimes involving digital assets from five years to 10, as well as extend “the period during which assistance requests to foreign governments have a statute of limitations.”

The DAC network

Stationed in US attorneys’ offices and in special judicial divisions, the DAC network will serve “as a forum for prosecutors to obtain and disseminate training, technical expertise, and guidance on the investigation and prosecution of digital asset crimes … from digital asset subject matter experts, serving as a first-line source of information and guidance on legal and technical issues relating 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 on 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 and building relationships with foreign governments 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. These are the DOJ’s own criminal and national security divisions, as well as the FBI, the Drug Enforcement Agency (DEA) and the US Marshals Service.

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

The primary role of the DAC network will be to monitor and assist these prosecutors. However, the report spends a lot of space detailing how various regulatory agencies have been involved in monitoring and acting on digital assets.

These 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 for 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 regulatory framework related to digital assets.

“Regulatory agencies play a critical, multifaceted role in meeting the policy objective.”

For all PYMNTS crypto coverage, subscribe to the daily Crypto newsletter.

New PYMNTS study: How consumers use digital banks

A PYMNTS survey of 2,124 US consumers shows that while two-thirds of consumers have used FinTechs for some aspect of banking, only 9.3% call them their primary bank.