On October 6, 2021, the U.S. Department of Justice announced the launch of the National Cryptocurrency Enforcement Team (NCET) “to tackle complex investigations and prosecutions of criminal misuses of cryptocurrency, particularly crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure actors.” Crypto mixing and tumbling services help users reduce traceability by obscuring the sources of their funds. As part of this announcement, the DOJ asserted that cryptocurrency is the “primary demand mechanism” for ransomware payments and the “preferred means” of exchange on dark markets for illegal drugs, weapons, malware and other hacking tools. The DOJ said further that the NCET will pursue its own cases, assist with existing and future cases brought by the DOJ’s Criminal Division and U.S. Attorneys’ Offices across the country, and “assist in tracing and recovery of assets lost to fraud and extortion, including cryptocurrency payments to ransomware groups.”
The NCET was created “to draw on the Department’s cyber and money laundering expertise to strengthen our capacity to dismantle the financial entities that enable criminal actors to flourish — and quite frankly to profit — from abusing cryptocurrency platforms” per a statement by Deputy Attorney General Lisa Monaco. “As the technology advances, so too must the Department evolve with it so that we’re poised to root out abuse on these platforms and ensure user confidence in these systems.”
This news follows: (1) the DOJ’s August 18 report that an Ohio resident pled guilty to operating a bitcoin mixer call Helix that laundered more than $300 million; and (2) the Treasury Department’s September 21 announcement of the imposition of sanctions against a virtual currency exchange called Suex “for its part in facilitating financial transactions for ransomware actors.”
The advent of the NCET signals an escalation of government involvement and enforcement in the crypto space. This is no surprise in light of the DOJ’s Cryptocurrency Enforcement Framework, released in October 2020 which included an overview of what the DOJ considers to be emerging threats and outlined the DOJ’s response strategies which are echoed in the mandate given to NCET. Both the announcement regarding the NCET and the Cryptocurrency Enforcement Framework emphasize the DOJ’s partnerships with other federal agencies in monitoring the cryptocurrency industry. This point coincides with recent comments by SEC Chair Gary Gensler, who noted the SEC’s coordination with the CFTC for increased regulation over various aspects of the cryptocurrency industry.
Considered in context with the crypto-related actions of other governments (see our recent post on China’s approach), this move by the DOJ may also be viewed as an indication of its acknowledgement of the broader legitimacy of the crypto industry as a whole. This would be in line with statements made by SEC Chair Gensler and Fed Chair Jerome Powell in recent hearings before the U.S. House Committee on Financial Services. During an October 5 hearing, Gensler clarified his view that imposing bans on cryptocurrencies (like those in place in China) is beyond the SEC’s current authority and “would be up to Congress.” Similarly, in a September 30 hearing, Powell indicated that it was not his intention to ban cryptocurrency.
All of the developments are a reminder to companies involved in the cryptocurrency industry about the acute need to:
- Review and consider updates for compliance programs and protocols
- Train compliance personnel and deploy tracing tools to identify suspicious transactions
- Implement KYC, AML and sanctions monitoring measures
- Ensure tax and information filings are accurate and up to date
- Create an action plan, which includes a triage team, dedicated to handling inquiries from the DOJ or other law enforcement agencies
