What Is Crypto?
Cryptocurrency is digital currency traded on a virtual payment system — it does not exist in a physical form. Instead, payments are stored in a digital “wallet” on either an online crypto exchange or a physical digital storage device, like a computer hard drive. These wallets are protected by encryption, and transactions are recorded as digital entries on an online database. No personal information is connected to these transactions, making cryptocurrencies an attractive option for persons interested in anonymity. Unlike traditional currencies, cryptocurrency is decentralized; it is not backed or controlled by a bank or government institution, so transactions are considered peer-to-peer. There are more than 9,000 cryptocurrencies in the world; the most well-known is Bitcoin.
The Department of Justice Investigates Crypto Criminality
Many cryptocurrency users have legitimate and legal purposes. However, the anonymity and convenience of this payment system can be exploited for criminal activity, including money laundering and fraud. In 2020, the Department of Justice (DOJ) issued a Cryptocurrency Enforcement Framework articulating the concerns and challenges associated with this emerging technology. A year later, the DOJ announced the creation of the National Cryptocurrency Enforcement Team (NCET) to identify criminal misuses of cryptocurrency and pursue complex investigations and prosecutions of those involved. In February 2022, the DOJ also appointed Assistant U.S. Attorney Eun Young Choi as the first director of the NCET to combat the criminal misuse of cryptocurrency.
Shortly after Choi’s appointment, President Joseph Biden signed an executive order on Ensuring Responsible Development of Digital Assets. The order aims to protect consumers and businesses, provide access to safe and affordable financial services and support technological advances that promote responsible development and use of digital assets. The order’s other purpose is to combat the illicit use of cryptocurrency, particularly with an eye toward national security threats, as insurgent groups can use cryptocurrency to finance their activities.
In response, the DOJ recently released a report detailing its collaboration with various federal entities, such as the Treasury, Defense, Commerce, Labor, Homeland Security and Energy Departments and the Federal Bureau of Investigation. Together, these organizations seek to strengthen international law enforcement cooperation by increased information sharing and coordination with international organizations. One example of this international collaboration is the Financial Action Task Force (FATF), in which the U.S. and Japan co-chair the Virtual Assets Contact Group. Together, the countries set the international standards for fighting against illicit financing of terrorist groups, which often includes the use of cryptocurrency.
Notable Crypto-Related Prosecutions
As a result of these developments, the DOJ has ramped up its efforts in prosecuting crimes involving cryptocurrency. Some recent examples include:
- In August 2021 in the U.S. District Court for the District of Columbia, a defendant pled guilty to laundering over $300 million of cryptocurrency by charging customers for assistance in concealing their cryptocurrency transactions (often used for illicit means such as purchasing illegal drugs) from law enforcement.
- Prosecution began in February 2022 in the U.S. District Court for the District of Columbia against two defendants for conspiracy to launder cryptocurrency stolen during a hack of virtual currency exchange Bitfinex, with law enforcement seizing over $3.6 billion in cryptocurrency — the largest DOJ cryptocurrency recovery to date.
- A defendant was charged in March 2022 in the U.S. District Court for the District of Columbia with assisting countries in evading U.S. sanctions by sending over $10 million worth of cryptocurrency to one of the countries currently sanctioned by the U.S. government.
As the DOJ’s continued focus on prosecuting illicit cryptocurrency shows, the anonymity so often associated with cryptocurrency is not as airtight as many criminal actors might think.
For more information regarding cryptocurrency enforcement or privacy, please contact Madelaine Lane or a member of the White Collar Criminal Defense Practice Group.
2022 Summer Associate Venesa Haska contributed to this eAlert.