The Treasury and Justice Departments intend to act as the nail and hammer for the crypto industry’s dark side – one working to identify cybercriminals and their exploits, and the other prosecuting and bringing those baddies to justice.
Driving the news: Friday’s list of Biden administration reports on a framework for developing digital assets addresses matters threatening national security and the U.S. financial ecosystem, and lists priorities and makes recommendations in accordance with the President’s March imperative.
Why it matters: Crypto crime is on the rise, and the first-ever government-wide effort featured in the series of reports will inform forthcoming digital asset policies and determine which crypto tech will flourish and what ends up happening.
- A crackdown appears to be underway between the new crypto enforcers and calls to extend the statute of limitations for prosecuting crimes of this nature.
What you say: The reports “lay the groundwork for a thoughtful, comprehensive approach to mitigating the acute risks of digital assets and—where proven—reaching their benefits,” said National Economic Council Director Brian Deese and National Security Advisor Jake Sullivan , in a statement on the digital assets of the WH wealth framework.
- zoom out: The White House Framework fact sheet “reads like a parent realizing their tween is now mature enough to drive with a driver’s license,” said Laurel Loomis Rimon, partner at Paul Hastings’ The Rules of the Road.”
details: The Treasury Department’s Action Plan to Address Illegal Funding Risks of Digital Assets addresses the Leading Financial Action Task Force (FATF) on Virtual Asset Supervision and Virtual Asset Service Providers (VASPS).
- The government agency aims to more effectively “deter, detect and disrupt” criminals’ misuse of digital assets and digital asset service providers.
- They also want to make revisions as needed to include decentralized finance (DeFi), non-fungible tokens (NFTs), peer-to-peer transactions, and other “emerging” technologies. Mixed services, darknet markets and non-compliant VASPs used to launder or disburse illicit funds in fiat currency have been identified as areas of interest.
flashback: Recall OFAC imposed sanctions on Tornado Cash, Ethereum’s largest privacy tool, which has been used to launder more than $7 billion worth of crypto since its launch in 2019, including over $455 million owned by North Korea’s Lazarus group were stolen.
- The largest centralized exchange in the US, Coinbase, is funding a lawsuit against these sanctions.
In the meantime, The DOJ’s report, The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets, is 66 pages long and details how crimes are committed, the challenges of investigating these types of offenses, and the legislative responses to them could help grab bad actors better.
- Recommendations include extending the statute of limitations from five years to ten years for certain violations, citing the complexity of investigating and prosecuting this type of crime.
What we observe: 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 “receive and disseminate training, technical expertise and guidance.”
- The National Cryptocurrency Enforcement Team (NCET), which focuses on crimes committed by exchange, mixing and tumbling services, is currently involved in investigations and prosecutions of Hydra, Bitfinex, Helix and BitMEX.
- FinCEN Exchange, a voluntary public-private intelligence-sharing partnership, will work with the FBI and the National Cyber Investigative Joint Task Force to establish an IVAN (Illicit Virtual Asset Notification) platform.
The big picture: The DOJ intends to continue assisting the Securities and Exchange Commission — which to date has initiated more than 100 enforcement actions related to 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.