On October 8, 2020, the United States Department of Justice’s (DOJ) Cyber-Digital Task Force released new cryptocurrency guidelines. The 83 page report, entitled “Cryptocurrency: An Enforcement Framework” identifies cryptocurrency users’ legal obligations in the United States and provides an overview of the threats and enforcement challenges that face the government when it comes to the increasing use of cryptocurrency. The report also examines the DOJ’s role in prosecuting cryptocurrency conduct and notes applicable statutes that are used to prosecute people for crimes related to the use of cryptocurrency.
The report was issued just days after the DOJ announced one of its most significant cryptocurrency prosecutions of 2020: the criminal indictment of the founders and senior executives of BitMEX, the Bitcoin Mercantile Exchange, one of the world’s biggest cryptocurrency exchanges.
Taken together, the new guidelines and the indictment of the founders and senior executives of BitMEX send a strong message that the government intends to expand efforts to combat the use of digital assets and blockchain technology for criminal purposes.
Cryptocurrency is a digital representation of value. Like traditional currency, cryptocurrency functions as a medium of exchange. It can be traded or transferred digitally and used for a variety of payment or investment purposes. The exchange value is based on agreement and trust among the community of cryptocurrency users.
Unlike traditional forms of currency, also known as fiat currency, real currency, or national currency, cryptocurrencies are decentralized, meaning that they lack a central administrator who issues and maintains payment ledgers. Instead, cryptocurrencies rely on complex algorithms, a distributed ledger known as a “blockchain,” and a network of peer-to-peer users who maintain a system of payments and receipts.
Cryptocurrencies can be convertible, meaning they have an equivalent value in real currency, or non-convertible and specific to a particular virtual domain such as an online gaming community and unable to be exchanged for real currency.
Cryptocurrency is commonly exchanged in one of three ways: through a cryptocurrency exchange, directly from person to person, or through other intermediaries.
The DOJ report acknowledges the new possibilities created by cryptocurrency, blockchain, and digital lender technologies, and notes that cryptocurrency has the potential to change the way human beings interact and how society is organized. But the report cautions that “cryptocurrency technology plays a role in many of the most significant criminal and national security threats that face the United States.”
Cryptocurrency can be used to transfer money around the world in exchange for goods, services, and other sources of value. By eliminating the need for financial intermediaries, cryptocurrencies have the potential to minimize the cost of financial transactions, reduce corruption and fraud, and avoid inflation. But the report sends a message that people who use cryptocurrency to engage in criminal activities risk prosecution.
Many of the crimes involving the use of cryptocurrencies are not new. Rather, the government suspects that people are using cryptocurrencies in new and different ways to advance and hide unlawful activities.
Meanwhile, blockchain technologies have changed the way traditional crimes are being committed. Investigators are learning how cryptocurrency users communicate with one another and use specialized communications applications. And because blockchain ecosystems are often international in nature, enforcement can be more difficult. In fact, some of the largest cryptoasset exchanges exist outside of the United States.
When cryptocurrencies are used illegally, the criminal conduct typically fall into one of three categories: (1) financial transactions associated with the commission of crimes; (2) money laundering and shielding legitimate financial transactions tax, reporting, or other legal requirements; and (3) crimes that are directly implicated in the cryptocurrency marketplace itself.
According to FBI director Christopher Wray, criminals try to use cryptocurrency to hide their true identities when engaging in criminal activity. This may include the use of ransomware, acquiring malware, or requesting and receiving ransom payments. Cryptocurrency can also be used to try to prevent law enforcement agents from ‘following the money’ across criminal investigations, and to trade in illegal tools on the dark web.
The DOJ continues to investigate and prosecute people who use cryptocurrencies to commit, facilitate, or conceal criminal activities. The federal government has a broad range of legal authorities at its disposal to prosecute people suspected of cryptocurrency-related crimes. These include charges for:
Prosecutors may also rely on statutes related to:
Issuers, exchangers, and brokers of digital assets can be considered money services businesses and are subject to anti-money laundering requirements. They can face prosecution under the Department of the Treasury’s Financial Crimes Enforcement Network. In addition, federal prosecutors commonly use money laundering statutes to charge people with cryptocurrency crimes. In fact, being charged with money laundering is one of the most significant risks of using cryptocurrency.
If you have been charged with a federal crime based on your use of cryptocurrency, it is critical that you have an experienced and aggressive federal criminal defense attorney on your side. You need someone who understands how cryptocurrencies are used and can effectively challenge the prosecution’s case against you.
Criminal defense attorney Hope Lefeber is passionately committed to resisting government intrusion into people’s private lives and has extensive experience defending people who have been accused of financial crimes in federal court.
Ms. Lefeber has earned a reputation as an aggressive litigator who is meticulously prepared and pays extraordinary attention to detail. She is highly respected by her colleagues in the federal bar, and by federal judges and federal prosecutors. Ms. Lefeber has successfully defended high-profile clients including executives at Fortune 500 Companies, businessmen and women, professors, doctors, lawyers, accountants, healthcare professionals, and individuals involved in securities transactions. Ms. Lefeber knows what it takes to win, and she has the knowledge and experience to handle even the most complex criminal cases involving cryptocurrencies.
If you are facing federal criminal charges, Hope Lefeber should be your first call. Contact Hope Lefeber today to schedule a free, confidential consultation to discuss your case.