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 More Aggressive Crypto Investigations 

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Michael Santos

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MORE AGGRESSIVE CRYPTOCURRENCY INVESTIGATIONS ARE HERE

The National Cryptocurrency Enforcement Team, NCET, seeks to reduce the use of cryptocurrency as a criminal tool.

INTRODUCTION

The Department of Justice (DOJ) recently announced the creation of a National Cryptocurrency Enforcement Team (“NCET”), which will have the responsibility and authority to tackle investigations and prosecutions of criminal cryptocurrency matters. 

The potential for illegal use of cryptocurrency is such that the federal government has decided now is the time to redouble its law enforcement efforts.

The NCET seeks to bring significant law enforcement resources together to reduce the use of cryptocurrency as a criminal tool. 

DISCUSSION

In August 2021, we published an article, Crypto World Under Siege, highlighting the unwanted attention the cryptocurrency industry has attracted from federal regulators. 

Crypto World Under Siege

As the blog post stated, cryptocurrency is still misunderstood by many as primarily a vehicle for illegal transactions. As such, cryptocurrency transactions continue to attract unwanted attention from federal government investigators. 

We noted the efforts of federal and state regulators and lawmakers to ramp up the cryptocurrency industry’s oversight. Even so, consensus predictions were for more law enforcement efforts to come, tailored to the rapidly growing crypto industry. 

Until now, many law enforcement agencies have been involved in the prosecution of crypto cases, including:

  • Department of Justice (DOJ)
  • Federal Bureau of Investigation (FBI)
  • Securities and Exchange Commission (SEC)
  • Commodity Futures Trading Commission (CFTC)
  • Internal Revenue Service (IRS)
  • Financial Crimes Enforcement Network (FinCEN)
  • Financial Stability Oversight Council (FSOC), and
  • States Attorneys General (AGs).

It did not take long for the U.S. Attorney General’s Office to prove the general consensus correct, and now we have the NCET. With so many agencies having overlapping jurisdiction over crypto matters, more leadership and coordination can only be helpful. 

National Cryptocurrency Enforcement Team

Now, as observers had been anticipating, the top brass at the DOJ confirmed the creation of NCET to tackle investigations and prosecutions of criminal cryptocurrency matters. 

As is typical in complex federal investigations, NCET will work closely with several other federal agencies, subject matter experts, and law enforcement partners throughout the government. 

Specifically, according to the DOJ, the NCET will include members from the DOJ Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), Computer Crimes and Intellectual Property Section (CCIPS), and various U.S. Attorneys’ Offices across the country.

The DOJ announcement indicates that the NCET will build upon MLARS’s pre-existing Digital Currency Initiative. The NCET will also draw upon the knowledge obtained from the pre-existing “Cryptocurrency Enforcement Framework.” 

NCET’s Mandate

The most recent DOJ announcements confirm that NCET will have the authority to tackle investigations and prosecutions of any unlawful use of cryptocurrency. Essentially, the NECT’s core mandate is to reduce the use of cryptocurrency as a criminal tool. 

In addition, the NCET will have the ability to trace and recover assets lost to fraud and extortion, as well as tackle cryptocurrency payments to ransomware groups, which has been a particular challenge of late.

In establishing this new team, the Attorney General believes that the NCET will strengthen the DOJ’s ability to “dismantle the financial entities that enable criminal actors to flourish — and quite frankly to profit — from abusing cryptocurrency platforms.”

List of NCET Priorities

As reported on JDSupra’s online legal news, the NCET will:

  1. Investigate and prosecute cryptocurrency cases;
  2. Develop strategic priorities for investigations and prosecutions involving cryptocurrency;
  3. Identify areas for increased investigative and prosecutorial focus, including professional money launderers, ransomware schemes, and financial institutions working with cryptocurrency;
  4. Develop and maintain relationships with federal, state, local, and international law enforcement agencies that investigate and prosecute cryptocurrency cases;
  5. Train and advise federal prosecutors and law enforcement agencies in developing investigative and prosecutorial strategies; and
  6. Collaborate and build relationships with private sector actors experienced in cryptocurrency matters to further the criminal enforcement mission.

Initial Targets of NCET

Cryptocurrency exchanges and money laundering infrastructure actors will have to endure particular scrutiny as the DOJ looks for signs of criminal activity. 

Mixing and tumbling services, which break the connection between the crypto wallet address sender and the recipient address, will also be under the microscope. The “mixing and tumbling” process is designed to allow the source of the funds to remain anonymous, and there is concern that it can facilitate criminal activity.

Due to increased law enforcement efforts, we recommend that people involved in the following take heed:

  • people involved in the regular use of cryptocurrency;
  • cryptocurrency-focused businesses;
  • non-fungible token (“NFT”) platforms; and 
  • businesses that accept cryptocurrency as payment or do business with third parties dealing in cryptocurrency need to pay special attention.

Example of Recent Enforcement Action

Federal regulators like FinCen are already going after cryptocurrency companies. Bitmex recently received a $100 million civil penalty on allegations that it did not implement and maintain a compliant anti-money laundering program or customer identification program. Bitmex also failed to report suspicious activity. Expect to see many more such law enforcement actions coming up.

The Search For A Director of NCET

Based on news reports and the job posting, the DOJ is looking for a supervisory trial attorney to lead the NCET.

The job posting reveals that the new director will lead the legal team by setting strategic priorities for crypto investigations and enforcement cases with the help of U.S. Attorney’s Offices and investigative agencies.

The director will also maintain close relationships with federal, state, and local branches of law enforcement to coordinate the sharing of information and strategies among them, including interactions with agencies like the Financial Crimes Enforcement Network (FinCEN) and the Securities and Exchange Commission (SEC). The director will foster private sector relationships as well, in aid of law enforcement. 

Finally, the director will be someone with extensive knowledge of crypto and blockchain technology combined with an understanding of white-collar law and anti-money laundering statutes. 

CONCLUSION

The potential for illegal use of cryptocurrency is such that the federal government has decided now is the time to redouble its law enforcement efforts. The NCET seeks to bring significant law enforcement resources together to reduce the use of cryptocurrency as a criminal tool. With so many agencies having overlapping jurisdiction over crypto matters, more leadership and coordination from DOJ can only be helpful. 

Click below for more information from these sources:

JD Supra Legal News

DOJ Announces NCET (National Cryptocurrency Enforcement Team)

DOJ Looking For Someone To Helm Its New Crypto Enforcement Team

Prison Professors, an Earning Freedom company, regularly publishes on white-collar law enforcement and criminal justice matters.

Prison Professors, an Earning Freedom company, works alongside (not in place of) civil and criminal defense counsel to help clients proactively navigate through investigations and prosecutions. Our team also helps clients prepare mitigation and compliance strategies.

If you have any questions or are uncertain about any of the issues discussed in this post, schedule a call with our risk mitigation team to receive additional guidance.

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