cryptocurrency enforcement framework
Cryptocurrencies,  Regulation,  United States

DoJ launches law enforcement guide to crypto

The Department of Justice’s extensive report, ‘Cryptocurrency: An Enforcement Framework,’ singles out many of the challenges cryptocurrencies bring to law enforcement

U.S. Attorney General William Barr today released an 83-page report detailing the threats and challenges cryptocurrencies pose to law enforcement, and in some ways, it’s a doozy.

Look at what the fifth sentence in “Cryptocurrency: An Enforcement Framework” says:

“Indeed, despite its relatively brief existence, cryptocurrency technology plays a role in many of the most significant criminal and national security threats that the United States faces.”

The report breaks the illicit uses of cryptocurrencies into three broad categories: buying or selling illegal products or services, money laundering, and cryptocurrency-specific crimes like exchange hacks.

Among the highlights of “Cryptocurrency: An Enforcement Framework” are: The Department of Justice has jurisdiction if a cryptocurrency transaction touches the U.S. in any way, even if it’s just routed through a server or data storage in the U.S.

Think about that last part for a second. Data storage sounds awfully like a blockchain node. And seeing as every node stores every transaction, the U.S. government is essentially asserting authority over every blockchain transaction, as long as there is one node in America.

Then there are privacy coins—anonymity enhanced cryptocurrencies, or AEC’s, in DoJ terminology. Never very likely to be embraced by law enforcement, the Enforcement Framework calls the possession and use of AECs is “a high-risk activity that is indicative of possible criminal conduct.”

So, a wallet with Dash, Zcash or Monero is essentially treated like a bag with a prybar, glass-cutter, and ski mask—proof that you’re probably up to no good.

An indication of how serious the DoJ is about this is that its willing to take a hit in the wallet: “In most circumstances, the Department does not liquidate seized or forfeited AECs, as doing so allows them to re-enter the stream of commerce for potential future criminal use.”

Oh, and mixers and tumblers? If you operate one, you’re criminally liable for any money laundering that goes through it. 

Decentralized exchanges get taken to task for making it easy to avoid anti-money-laundering laws, and warns that individual participants in P2P transactions must abide by the Bank Secrecy Act requirements for Money Service Businesses.

The report saves its poetic side for terrorists, however:

“Current terrorist use of cryptocurrency may represent the first raindrops of an oncoming storm of expanded use that could challenge the ability of the United States and its allies to disrupt financial resources that would enable terrorist organizations to more successfully execute their deadly missions or to expand their influence.”

Recognizing the benefits

That said, Barr’s comments about cryptocurrencies in the release announcing the Framework are fairly evenhanded:

“Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society.  Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.”

And certainly acting Assistant Attorney General for the Criminal Division Brian Rabbitt is quite reasonable: “Cryptocurrencies and distributed ledger technology (DLT) present tremendous promise for the future, but it is critical that these important innovations follow the law.”

The Enforcement Framework, he said, “provides the public with important information intended to help them understand and comply with their obligations under the legal regimes that govern these new and fast-developing technologies.”

The DoJ, he added, “is committed to supporting the advancement of legitimate cryptocurrency technologies and uses.”

The report also recognizes the benefits of DLT, noting in the introduction that “it bears emphasizing that distributed ledger technology, upon which all cryptocurrencies build, raises breathtaking possibilities for human flourishing. These possibilities are rightly being explored around the globe, from within academia and industry, and from within governments— including our own.”

The Department of Defense, Federal Reserve, and U.S. Food and Drug Administration are singled out for seeing great potential in DLT. 

That said, you have to wonder if the timing of the indictments (and in one case arrest) of the four top officers of cryptocurrency derivative exchange BitMEX on Oct. 1 was coincidental.

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.