Treasury and Justice reports tackle cryptocrime

The Treasury Department and the Justice Department intend to act as hammer and nail to the dark side of the crypto industry – one working to identify cybercriminals and their businesses, and the other pursuing and bringing these crooks to justice.

Driving the news: Friday’s list of reports from the Biden administration on a framework for the development of digital assets takes as its starting point issues that threaten national security and the US financial ecosystem, lists priorities and makes recommendations according to the president’s imperative in March.

Why it matters: Cryptocrime is on the rise, and the first government efforts shown in the reports will inform digital asset policies to come and determine which cryptotech flourishes and which expires on the vine.

• Between the new crypto enforcers and calls to extend the statute of limitations for prosecuting such crimes, it appears a crackdown is underway.

What they say: The reports lay “the foundation for a thoughtful, comprehensive approach to reducing digital assets’ acute risks and — where proven — capitalizing on their benefits,” National Economic Council Director Brian Deese and National Security Adviser Jake Sullivan said in a statement on WH digital assets framework.

• Zoom out: The White House framework fact sheet “reads like a parent realizing their child is now old enough to be out on the road with a driver’s license,” said Paul Hastings partner Laurel Loomis Rimon. “And it’s time to start setting some driving rules.”

Details: Treasury’s Action Plan to Address Illicit Financing Risks of Digital Assets Targets Leading Financial Action Task Force (FATF) to Monitor Virtual Assets and Virtual Asset Service Providers (VASPS).

• The government agency wants to more effectively “deter, detect and disrupt” the misuse of digital assets and digital asset providers by criminals.
• They also want to make revisions as needed to include decentralized finance (DeFi), non-fungible tokens (NFT), peer-to-peer transactions and other “emerging” technologies. Mixing services, darknet markets and non-compliant VASPs used to launder or disburse illicit funds for fiat currency were identified as areas of interest.

Flashback: Revoke OFAC-issued sanctions against Ethereum’s biggest privacy tool, Tornado Cash, which was used to launder more than $7 billion worth of crypto since its inception in 2019, including over $455 million stolen by North Korea’s Lazarus Group.

• America’s largest centralized exchange Coinbase is funding a lawsuit challenging these sanctions.

Meanwhile, DOJ’s report, The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets, contains 66 pages and describes how crimes are committed, the challenges of investigating this type of wrongdoing, and what legal measures can help them. find bad actors better.

• Its recommendations include extending the statute of limitations to 10 years from five for certain violations, citing the complexity of investigating and prosecuting these types of crimes.

What we’re looking at: New and old crypto enforcers:

• The Digital Asset Coordinators (DAC), a network of 150 federal prosecutors from jurisdictions across the United States, will serve as a forum to “provide and disseminate training, technical expertise and guidance.”
• The National Cryptocurrency Enforcement Team (NCET), focused on crimes committed by exchanges, mixing and tumbling services, is currently involved in the investigation and prosecution of Hydra, Bitfinex, Helix, BitMEX.
• The FinCEN Exchange, a voluntary public-private information sharing partnership, will work with the FBI and the National Cyber ​​​​Investigative Joint Task Force to establish the Illicit Virtual Asset Notification (IVAN) platform.

The big picture: DOJ intends to continue to support the Securities and Exchange Commission—which to date has taken more than 100 enforcement actions involving digital assets, including initial coin offerings, unregistered securities exchanges, and DeFi protocols—to enforce securities laws.

Between the lines: Law and order is coming for crypto.