Published: October 16th, 2020
U.S. Attorney General, William Barr, on Thursday, October 8, unveiled a detailed document showing how the Department of Justice (DOJ) contemplates regulating the cryptocurrency space. The document says that illicit crypto use poses a threat to law enforcement activities.
The Cyber-Digital Task Force of the Office of the U.S. Attorney General, on Thursday, October 8, published a document titled, Cryptocurrency: An Enforcement Framework. The paperwork defines cryptocurrencies and their possible use cases. The document, which is the agency’s first elaborate attempt at laying the ground rules for the largely unrestricted cryptocurrency sphere, provides detailed information about both legitimate and illicit use cases of crypto. Overall, it hopes to strip users of the anonymity that the blockchain and cryptocurrencies give them.
Experts were quick to point that the paperwork is a testimony of the nonchalant nature with which state agencies have approached the blockchain and cryptocurrencies. For instance, the section on legitimate uses is not only short but is also skeptical, the crypto experts added.
However, it mentioned the obvious fears. According to the documentation, various organizations have used crypto to fund terrorism, blackmail and extort victims, launder funds, purchase illicit goods or services, and undertake cryptojacking.
The section is, however, shallow considering the agency’s claim that it has spent two years figuring how best to approach the issues in question.
According to Sujit Raman, the chair of the DOJ’s task force, the two-year effort is paying off. He said so while referring to the recent cases against Telegram, Welcome to Video, which is a child exploitation ring, and sanctions designations, an Iranian ransomware plot, which all used crypto to achieve their objectives.
In a statement, William Barr, U.S. Attorney General, said that cryptocurrencies are hedged on a technology that can fundamentally alter how mankind interact and how the society is organized. He added that ensuring that the use of blockchain technology is safe and does not interrupt public safety or compromise national security is important to the U.S. and its allies.
The DOJ report is split into three segments. The overview of the crypto space and the current illicit use of cryptocurrencies form the first section. The laws governing the sphere and the federal agencies that enforce these laws cover the document’s second section. And, the current challenges plaguing the use of cryptocurrencies and the various suggested strategies come in the last bit of the paperwork.
The report warned of the cumbersome nature of investigating cryptocurrency crimes. Noting that cryptocurrencies present investigators with a bigger headache compared to other previous tools of committing crimes, the DOJ called on vigilance against pump-and-dump schemes among other such new schemes that individuals in the crypto space keep inventing.
The DOJ’s paperwork encouraged law enforcement agents to embrace the use of specialized communications applications. Highlighting how the initial coin offering (ICO) boom has fueled the growth of decentralized finances (DeFi) markets, the report further warned that the markets that individuals in the space use evolve rapidly.
The federal agency observed that blockchains are borderless, a fact that allows anyone from any corner of the world to interact with the markets. The DOJ added that this feature adds another layer of complexity.
The report also pointed to the decentralized platforms, anonymity-enhanced cryptocurrencies, and peer-to-peer (P2P) exchanges, which the DOJ said, further hid financial transactions for legitimate agencies’ scrutiny.
Aside from the segmentation, the following bits emerged as the key takeaways from the framework:
Cryptocurrency exchanges and other businesses that transmit or exchange virtual currencies at a fee will now be considered as money services businesses (MSBs). As such, these entities will be subject to anti-money laundering (AML) and Know
Your Customer (KYC) stipulations. These businesses will submit to the oversight authority of the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury.
Besides, the agency’s requirements will apply equally to both U.S.-based cryptocurrency exchanges and their counterparts based abroad, as long as they are serving residents of the U.S. This regulation applies to all relevant businesses
including entities that do not have a physical presence in the U.S.
Lastly, the DOJ stressed that cryptocurrency exchanges that fail to comply with the U.S. regulatory requirements will be liable for federal criminal charges and forfeiture.
Besides the three key points, the report details three common classes of illicit cryptocurrency use. These are financial transactions undertaken to commit crimes, money laundering and hiding income to evade tax obligations, and cryptocurrency crimes that directly implicate the crypto exchange.
While the industry thinks the DOJ’s efforts do not amount to much, other law enforcement efforts lauded the endeavor, terming it as timely. Christopher Wray, the FBI Director, said that his agency experiences first hand, the dangers brought upon the economy and society when criminals twist the important technological premise of the blockchain and cryptocurrencies to achieve selfish ends.
Wray praised the framework, adding that it describes what law enforcement officers encounter. He added that criminals who use virtual currencies to keep investigators off their trail and to trade in contrabands and other illicit goods from the dark web are a common phenomenon.
The FBI Director gave the example of cybercriminals behind ransomware attacks who he said often use crypto payments to hide their identities when executing their plans and when receiving their bounty. He added that the framework could not have come at a better time, especially because it will help FBI agents who are constantly innovating to keep abreast of the evolution of the use of crypto by criminals.
While thanking the Cyber-Digital Task Force for putting together the detailed report, the Attorney General Barr said the framework gives direction for individuals that seek to understand federal enforcement priorities in the nascent space.
On her part, Beth Williams, the assistant attorney general in charge of legal policy, said the framework presents her agency’s stand about both domestic and international stakeholders.
The DOJ has published a cryptocurrency enforcement framework that highlights the regulations that guide the blockchain and cryptocurrency space going forward. While unveiling the paperwork, the U.S. attorney general said the regulatory framework will help players understand the areas that law enforcement agencies are prioritizing. The effort was praised by other law enforcement bodies who said it will give the much-needed direction.