Last month we wrote about the U.S. Department of Commerce entering the cryptocurrency fray by publishing in the Federal Register a Request for Comments (RFC) under the title “Developing a Framework on Competitiveness of Digital Asset Technologies.” The impetus for the publication was President Biden’s March 9, 2022 Executive Order — “Ensuring Responsible Development of Digital Assets” — which the White House described as the first ever, whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology. In response to that same Executive Order, on June 7, 2022, the U.S. Department of Justice issued a Report entitled “How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets.”
The Report focuses on the criminal misuse of digital assets, the most common of which are cryptocurrencies. As the Report says, perceived pseudonymity of cryptocurrencies makes them attractive vehicles for money laundering and other criminal exploits, and their widespread promotion as investment vehicles has led to opportunities for criminals to target consumers and retail investors—particularly those who seek to profit from investing in this emerging financial ecosystem, but are unfamiliar with the technology and the attendant risks of the market.
Because of the decentralization and anonymizing features of cryptocurrencies, criminal conduct in this sphere is cross-border. This cross-border nature of the crimes makes paramount the collaboration with foreign law enforcement partners to locate and gather electronic records and digital evidence, seize and prevent further distribution of digital assets linked to crime, and identify and hold responsible criminal actors. The Report notes that gaps in anti-money laundering and counter-financing-of-terrorism (AML/CFT) regulatory regimes across jurisdictions not only jeopardize the safety and stability of the international financial system, but also create opportunities for criminal actors to engage in “jurisdictional arbitrage” to take advantage of regulatory inconsistencies across jurisdictions, or in some cases, complete lack of regulation and supervision.
The Report concludes with the following three recommendations to bolster enforcement and improve international cooperation:
(1) undertaking additional efforts to build the capacity of foreign counterparts to conduct the type of complex and highly specialized investigations required in this area;
(2) engaging in robust information sharing, early coordination, and deconfliction in investigations across various domestic and international agencies; and
(3) promoting more uniform regulation among the U.S. and foreign partners in the digital assets space through implementation of international standards that could help reduce the risks posed by jurisdictional arbitrage.
Implementation of effective AML/CFT safeguards, in line with international standards, are among the recommended actions to support law enforcement’s ability to identify criminal actors who exploit digital asset technology.”