Explain raid? What to do with the DoJ Crypto Framework version?


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The US Attorney General’s Cyber-Digital Task Force recently announced the result of its months-long efforts to assess emerging cryptocurrency-related threats and formulate law enforcement strategies to combat them. The resulting guide leaves the reader with the impression that its authors have a solid understanding of how the focal asset class works, as well as some fixation on the ways in which it can be abused, as some observers claim.

In the highly charged atmosphere of the last few weeks leading up to the presidential election, with high profile enforcement actions against the people behind the BitMEX crypto-derivative exchanges and the U.S. government’s sweeping anti-monopoly push against Silicon Valley looming in the background, the Cryptocurrency Enforcement Framework seems to be looming as part of a larger political and regulatory dynamic. How does the publication of the document fit into the grand scheme of things and what message is it supposed to convey?

Timing and context

One reason why even a modest surge in digital asset enforcement activity can feel like a full blown move is that U.S. government agencies have been more selective about whether or not to hunt down unscrupulous crypto-actors.

The lack of specific regulations, as well as the notorious confusion about which regulator is taking the position, has left a general strategy of pursuing only the most egregious cases as opposed to blanket enforcement. The DoJ’s introduction of the Crypto Enforcement Framework could indicate that the tide is turning.

Andrew Hinkes, co-founder of consulting firm Athena Blockchain and attorney at law firm Carlton Fields, sees the report mainly as a summary of law enforcement efforts in the blockchain space over the past six years, but it shows a clear upward trend:

“Various federal agencies mentioned in the report, such as the SEC, the CFTC and the FinCEN, have steadily increased their regulatory and enforcement activities in the field of cryptocurrency as this area has grown. Much of the report collects and describes the measures taken by the various agencies in recent years. “

Barry Boss, co-chair of the commercial disputes department at the law firm Cozen O’Connor, noted that the DoJ has been “fairly lighthearted” in enforcing day-to-day regulatory requirements and may have taken the time to do so understanding develops.

It is unlikely that the publication of these enforcement guidelines will be tailored to specific developments in the cryptocurrency market as the comprehensive 83-page report has been in production for many months.

When Arlo Devlin-Brown, partner at Covington & Burling in business law and investigations, spoke about the general political moment, he noted that enforcement of the cryptocurrency is nowhere near the top priority of the 2020 presidential election:

“I suspect that this task force, like other DOJ task forces, is trying to prepare pending reports before the administration may change in January. Even so, I don’t think this issue is particularly relevant to electoral politics, and I don’t see any major changes in the priorities for enforcing cryptocurrency at the DOJ should Biden win the presidential election. “

The message

The guidance document details the DoJ’s priorities and strategies in relation to the mature cryptocurrency industry to educate the law enforcement community, market participants and the general public at home and abroad. That being said, parts of the report can be read as a signal of what certain subsets of crypto stakeholders can expect in the future.

Boss told Cointelegraph that the new guidelines indicate the DoJ’s willingness to step up enforcement. In his opinion, the purpose of the report is to “bring the cryptocurrency community up to speed”. This time it’s not just for the most brazen criminals:

“There are several studies that have shown that significant amounts of terrorist financing, money laundering, and other illicit proceeds are channeled through large, established exchanges. The DOJ has made it clear in its framework that it is aware of this issue and that enforcement of federal criminal law, including the KYC and AML requirements, is part of its framework to address it. “

Athena Blockchain’s Hinkes called the report a message “to compelling participants in the cryptocurrency market and industry” to remind them that “they should stay on the right side of the line of regulation because the federal government is spending significant funds on the fight against it provides related criminal activities, facilitated by or targeted against cryptocurrencies. “

In general, most of the experts who have spoken to Cointelegraph on the matter agree that the release of the framework illustrates the government’s determination to step up its enforcement efforts in the digital assets space. While this could lead to greater legal certainty and more secure acceptance for the crypto industry as a whole, certain sectors such as blockchain analysis, which specializes in tracking transactions and works closely with law enforcement agencies, will benefit directly from it.

Amanda Wick, general manager of blockchain analytics firm Chainalysis, spoke enthusiastically about the US government’s commitment to reducing financial risks for crypto users. She reiterated that blockchain intelligence has already won several major law enforcement battles:

“Using blockchain analysis, the DOJ has successfully investigated and prosecuted cases related to cryptocurrency, including charges of money laundering, drug trafficking, fraud and more.”

Wick believes the urgency of crypto-related threats will lead authorities to allocate additional resources to address them.

Go forward

Most importantly, the Department of Justice has developed a comprehensive vision of response strategies for non-compliance and general illegal activity of crypto assets, notes Liat Shetret, senior crypto policy and regulation advisor at cryptanalysis and compliance firm Elliptic. He added:

“The key message is how. How will the DoJ achieve this? In this regard, the plan is specific and clear. “

Shetret then set out the five cornerstones of the new law enforcement strategy: coordinating parallel enforcement actions and partnerships between agencies, promoting law enforcement awareness and expertise, federal and state collaboration, increased international collaboration, and private sector education and outreach.

Some experts also believe that the framework of the DoJ can influence legislative thinking about how to address certain novel challenges.

Dean Steinbeck, chief operating officer of blockchain company Horizen Labs, commented on Cointelegraph:

“The report is clearly used by US policymakers when enacting cryptocurrency laws. In particular, the report spends a lot of time investigating privacy coins or so-called “Anonymity Enhanced Cryptocurrencies” or “AECs”. I wouldn’t be surprised if Congress cites this report in laws aimed at restricting the use of AECs. ”

To clarify how exactly existing laws should be applied in practice, enforcement guidelines usually follow the law, but it seems that in the bizarre world of crypto, the opposite can also be the case. Either way, it would be a good idea for privacy coins and the crypto industry as a whole to prepare for both more targeted legislation and stricter enforcement in the near future.