Sep 19, 2022 - Economy & Business

Treasury and Justice reports tackle crypto crime

Illustration of a pair of handcuffs on 0 and 1 binary code numbers.
Illustration: Aïda Amer/Axios

The Treasury and Justice departments intend to act as nail and hammer to the dark side of the crypto industry — one working to identify cyber criminals and their exploits and the other, prosecuting and bringing those baddies to account.

Driving the news: Friday's slate of reports from the Biden administration on a framework for digital assets development home in on matters that threaten national security and the U.S. financial ecosystem, listing priorities and making recommendations per the president's March imperative.

Why it matters: Crypto crime is up and the first-ever government wide effort shown in the raft of reports will inform digital assets policies to come, determining what crypto tech blooms and what expires on the vine.

  • Between the new crypto enforcers and calls to lengthen the statute of limitations to prosecute crimes of that ilk, a fierce crackdown appears to be underway.

What they're saying: The reports lay "the groundwork for a thoughtful, comprehensive approach to mitigating digital assets’ acute risks and — where proven — harnessing their benefits," National Economic Council director Brian Deese and National Security Advisor Jake Sullivan said in a statement about the WH's digital assets framework.

  • Zoom out: The fact sheet on the White House framework “reads like a parent realizing their tween is now grown up 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 rules of the road.”

Details: Treasury's Action Plan to Address Illicit Financing Risks of Digital Assets is pointed at 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 service providers by criminals.
  • They also want make revisions as necessary to include decentralized finance (DeFi), nonfungible tokens (NFTs), peer-to-peer transactions and other "emerging" technologies. Mixing services, darknet markets, and non‑compliant VASPs used to launder or cash out illicit funds into fiat currency were identified as areas of interest.

Flashback: Recall OFAC issued sanctions against Ethereum's largest privacy tool, Tornado Cash, used to launder more than $7 billion worth of crypto since its start in 2019, including over $455 million stolen by North Korea's Lazarus Group.

  • The U.S.'s largest centralized exchange Coinbase is funding a lawsuit challenging those sanctions.

Meanwhile, the DOJ's report, The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets, runs 66 pages and details how crimes are being committed, the challenges of investigating those types of misdeeds, and what legislative action could help them nab bad actors better.

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

What we're watching: New and old crypto enforcers:

  • The Digital Asset Coordinators (DAC), a network of 150 federal prosecutors from jurisdictions across the United States, will act as a forum to "obtain 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 investigations and prosecutions of Hydra, Bitfinex, Helix, BitMEX.
  • FinCEN Exchange, a voluntary public-private information sharing partnership, will work with FBI and the National Cyber Investigative Joint Task Force to establish Illicit Virtual Asset Notification (IVAN) platform.

The big picture: The DOJ intends to continue supporting the the Securities and Exchange Commission—which to date has brought 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.

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