DoJ puts crypto criminals on notice: You’re the next BitMEX

U.S. Attorney General Bill Barr announced the release of a new cryptocurrency enforcement framework. Produced by the Attorney General’s Cyber-Digital Task Force, the framework outlines the emerging threats and enforcement challenges associated with the increase in digital asset use, the relationship between the Department of Justice and other enforcement agencies in the U.S. and abroad in addressing these challenges and details the Department of Justice’s strategy for responding to them.

It makes for great reading for anyone who remains unconvinced that regulation and effective enforcement is necessary for the survival of digital assets and their mass adoption. It shows the scale of the problem, the extent to which regulation and enforcement has been able to be used to combat it, and where gaps in regulation and enforcement are currently allowing criminals running criminal platforms to enable serious crime and defraud market participants of their money.

And for those who are enabling this crime wave—whether by committing the crimes directly, running the platforms which enable crimes to be committed or as an employee of a company who is operating outside of the law—this document shows that world governments are keenly aware of you, and it’s only a matter of time until you, your platform and/or your employer become another case study.

The report

In publishing the report, the task force could almost be addressing the crypto crime cartel directly. In categorizing the key threats posed by the digital asset market, they say:

“As the Task Force has found, illicit uses of cryptocurrency typically fall into three categories: (1) financial transactions associated with the commission of crimes; (2) money laundering and the shielding of legitimate activity from tax, reporting, or other legal requirements; or (3) crimes, such as theft, directly implicating the cryptocurrency marketplace itself.”

The account of criminal activity taking place using digital assets and associated technologies given by the DoJ in the report is sobering.

They point to countless instances of exchange operators allowing their platforms to be used—often openly—as a means of laundering money used in illegal transactions:

“Unlicensed or unregistered exchanges or money transmitting businesses can ‘provide an avenue of laundering for those who use digital currency for illicit purposes.’ In addition, even properly registered exchanges can serve as a haven for criminal activity by operating under lax rules or by flouting AML protocols.”

They talk about the bust of Welcome To Video, then the world’s largest child exploitation marketplace, where operators and users transacted in BTC on the belief of anonymity. They talk about the dismantling of three large-scale terrorist financing campaigns that were being enabled by digital assets; money went to al-Qassam Brigades, al-Qaeda and ISIS.

Of particular focus in the publication is the crimes that are taking place within digital asset markets themselves (as distinct from using the markets as a means to a criminal end). It identifies the very real risks of theft, market manipulation and general fraud posed by rogue exchanges that have been allowed to operate in absence of a comprehensive enforcement regime:

“This susceptibility to theft on a massive scale demonstrates that the lack of appropriate regulation and monitoring of cryptocurrency exchanges poses a threat to cryptocurrency users themselves, as well as to the general public.”

And:

“Given their potential to facilitate criminal activity, these entities have a heightened responsibility to safeguard their platforms and businesses from exploitation by nefarious actors and to ensure that customer data is protected and secured.”

The report goes on to identify the key business models which are being used to facilitate crimes of many kinds:

  • Cryptocurrency exchanges
  • Peer-to-peer exchanges
  • Cryptocurrency kiosks
  • Virtual currency casinos
  • Anonymity enhanced cryptocurrencies
  • Mixers and tumblers

The focus on digital assets which purport to provide anonymity as an enabler of criminal activity is encouraging, and touched upon throughout the report.

Enforcement

Unfortunately, however sobering, the report shouldn’t surprise anyone who has been paying attention. CoinGeek has reported extensively on the rampant fraud, money laundering, theft, child exploitation and drug trafficking which is currently taking place thanks to the efforts of big criminal exchanges and other crypto industry players.

Thankfully, the publication includes a comprehensive overview of the channels being used by law enforcement to hold these criminals to account. It identifies the agencies working under the mandate of the criminal code (think BitMEX’s Bank Secrecy Act indictments), regulatory authorities  (FinCEN and the SEC fall into this category). It also looks at non-U.S. regulators, such as the Financial Action Task Force (who are apparently investigating Binance).

As far as enforcement goes, the publication reports that a core part of law enforcement’s strategy is to be ‘aggressive’  in its investigation and prosecution of those who use digital assets to ‘commit, facilitate or conceal’ crimes. It specifically mentions the need for U.S. law enforcement and regulators to be able to pursue people and companies which are based overseas:

“The inherently global nature of the virtual asset ecosystem poses significant investigative challenges for U.S. law enforcement agencies and for Department prosecutors. Effectively countering criminal activity involving virtual assets requires close international partnerships.”

Education is another piece of the U.S.’s strategy in this space, emphasizing the need to have law enforcement that is appropriately trained and aware of crimes which are using often complex and novel technology.

Conclusion

The thrust of the DoJ’s work in this area is summed up nicely in the closing paragraphs of the report, something which the various scam digital assets and criminal exchanges should pay close attention to (emphasis added):

“Despite the many challenges, the Department of Justice has aggressively investigated and prosecuted a range of malign actors who have used cryptocurrencies to facilitate or to conceal their illicit activities. Similarly, the Department has brought actions against individuals and companies that have failed to meet their legal obligations to counter illicit activity. In particular cases, we have even proceeded against the illicit cryptocurrency itself, seizing those virtual assets and removing them from the stream of international commerce, irrespective of our ability to identify or to apprehend the actors who used them.”

The prosecution of BitMEX’s founders and lawsuits against the likes of Binance and Bitfinex show that U.S. law enforcement will not be stopped by a corporate veil or a thinly-disguised attempt to flee the reach of regulators and prosecutors by re-establishing in overseas jurisdictions. By referring these attempts directly, and by explaining that damaging criminal activity is taking place under the guise of a variety of different business models, it would seem that the most recent slate of prosecutions and lawsuits are the first of many.

The above quote also again emphasizes that action can be taken against digital assets directly, even when the criminals behind them might be unlocatable. Agencies in the U.S. have steadily expanded the scope of their enforcement actions over the past two years, and this report references privacy-enhanced assets multiple times. One can speculate based on this that ‘privacy coins’ and similarly marketed assets will increasingly fall into the crosshairs of the DoJ and associated agencies.

Now, it’s only a question of which illegal exchange, criminal mixer or fraudulent asset peddler comes next.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream and Ethereum—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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