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In early October, the US Department of Justice revealed its Cryptocurrency Enforcement Framework, a report that lays bare the government’s vision for emerging threats and enforcement strategies in the cryptocurrency space. The paper is an important source of information on how the laws governing digital finance will soon be implemented in the field.
One of the core principles the government states in the document is its broad extraterritorial jurisdiction over overseas-based actors who use virtual assets in ways that harm U.S. residents or businesses. The guide sets an extremely low limit for cross-border offenders to be eliminated before they are prosecuted.
According to the framework, it may be enough for a crypto transaction to “touch financial, data storage, or other computer systems in the United States” to provoke law enforcement. Is the rigor of this approach unprecedented in other areas of the application of financial crimes? What real tools does the US government have to fight off criminals acting from abroad?
Business as usual
The idea that U.S. law enforcement is justified in prosecuting criminal actors across nation borders if their activity has negatively impacted individuals, businesses, or infrastructure at home is nothing new, especially when it comes to cyber and financial crimes. .
Arlo Devlin-Brown, a partner in the Covington & Burling law firm’s white-collar firm, commented to Cointelegraph:
“The Department of Justice has consistently taken the position that US criminal jurisdiction extends to activities with minimal ties to the US, and in many cases US courts have embraced the Department of Justice’s expansive interpretation of its authority. Justice. Cryptocurrency companies that operate outside the United States but have ties to this country – bank accounts, customers, marketing – are at risk of law enforcement. “
Dan Newcomb, attorney at Shearman & Sterling law firm, said there is nothing particularly extraordinary about the extraterritorial approach enshrined in the Guidelines for Applying Cryptocurrencies, as the DoJ has previously used “a wide variety of tools to hold offenders accountable for crimes punishable under US law. “
The report’s authors point out that the United States has been using anti-money laundering measures against foreign actors who trade in fiat currencies for decades. Affirming a similar jurisdiction over those who use digital currencies appears to be a defensible extension of the principle already at work.
This is not new for cryptocurrencies either
The US government has, on many occasions, pursued foreign individuals and entities implicated in cryptocurrency-related crimes. Gail Fuller, vice president of K2 Intelligence Financial Integrity Network, said she considers the extensive extraterritorial jurisdiction established under the DoJ as “largely consistent with the US financial crime compliance regime,” which is designed to protect integrity. US financial system. Fuller commented:
“We have seen US lawsuits for sanctions and money laundering violations targeting foreign individuals or entities in cases where their transactions have touched the US or its banks. Indeed, we have already seen this in the context of cryptocurrencies, including with the 2017 indictment against foreign cryptocurrency exchange BTC-e and its Russian executive, Alexander Vinnik. “
According to Fuller, the BTC-e case is particularly interesting because, in addition to the money laundering allegations, the Department of Justice has accused the exchange platform of not registering as a monetary services provider in the United States, based on the volume of transactions it has facilitated.
James Farrell, deputy general counsel at trading solutions provider Apifiny, sees the application guidelines as a reminder to the cryptocurrency industry about something that has been well known in mainstream finance for over a decade: if an act of financial misconduct has a substantial effect in the United States, the SEC and the DoJ can and will seek those responsible. “Claiming that a single server in the United States is enough highlights how thin the reed is needed by the Justice Department to assert jurisdiction,” Farrell added.
For Farrell, the novel – and surprising – part of the report is the invocation of “protective jurisdiction” – truly world-wide criminal enforcement power – if the DOJ believes that activity involving cryptography may have national security implications. Farrell said:
“You see this concept embodied in international treaties relating to hostage-taking, terrorist attacks and the financing of terrorism. To hear that the same basis can be applied to the cryptocurrency industry has been shocking and an indicator of how seriously the DOJ is taking the potential criminal misuse of this transformative and developing technology. “
Application tools at the service of the DoJ
Proclaiming jurisdiction over people and entities who may be physically thousands of miles away from the shores of the United States is only a symbolic move if there are no effective means to hold them accountable. US law enforcement, however, has a nice arsenal.
A heavy weapon is the degree of control that US financial authorities exert over the traditional global monetary system. Dan Newcomb of Shearman and Sterling remarked to Cointelegraph:
“The key enforcement tool of the United States is the dominant role the US dollar plays in international trade and the fear that conventional financial institutions will be excluded from US dollar transactions. Most digital asset holders still need and want to convert those assets at some point into conventional currencies at financial institutions. Preventing a digital actor from accessing conventional financial institutions is a powerful tool. “
Devlin-Brown of Covington & Burling said the Justice Department can rely on a number of powerful statutes that can be used to prosecute overseas-based cryptocurrency actors:
“For example, the US Money Laundering Statute can reach almost any dollar-denominated transaction that US authorities can establish as being linked to many types of criminal activity. A dollar-denominated payment, for example, from Germany to Argentina is also covered because the transaction would likely involve a US bank as an intermediary. “
Michael Yaeger, a criminal offense attorney at Carlton Fields law firm and former US assistant attorney for the Eastern District of New York, told Cointelegraph that the DoJ’s report reveals no new tools for prosecuting overseas residents. However, Yaeger noted, the collection of past cases presented in the document provides “useful examples of his powers, and perhaps signals which tools will be used most in the future.”
One thing that caught Yaeger’s attention is the fact that the report appears to mention confiscation efforts more than previous DoJ cybercrime reports:
“When confiscation is combined with the preventive seizure of assets, it is not only a powerful remedy, but unusually fast. The United States has multiple cooperation agreements with other countries, including data-sharing agreements with foreign law enforcement and intelligence agencies, and has entered into specific agreements related to the confiscation and sharing of financial information. “
There is no doubt that the government is ready to leverage these and other international agreements in implementing its new detailed enforcement strategy. Promoting cooperation with foreign governments and intergovernmental organizations such as the FATF is listed among the focal points of the cryptographic framework.
The language of the DoJ framework on extraterritorial jurisdiction and cross-border enforcement may seem harsh to some. However, in reality the government is not articulating any principles that are radically different from those that are already being invoked in some high-profile cases related to cryptocurrencies. To say that these standards will be applied more systematically makes sense considering the expansion and maturation of the borderless realm of digital finance.
