• T Skevington and M Bacina

Team DoJ: World Police

The U.S. Department of Justice has released a report from the Attorney General's Cyber Digital Task Force titled "Cryptocurrency Enforcement Framework", which provides some insight into how Team America interprets its jurisdiction regarding digital asset activities.

The report opens with a hopeful introduction noting:

it bears emphasizing that distributed ledger technology, upon which all cryptocurrencies build, raises breathtaking possibilities for human flourishing.

But after noting the valuable research and numerous studies and US Federal agencies exploring blockchain use, the report asserts:

this technology plays a role in many of the most significant criminal and national security threats our nation faces

As one would expect for a document titled "Enforcement Framework" the report focuses on the oft repeated claim that digital assets are some kind of criminal haven. In an attempt to describe the various uses of digital assets, the Department suggests that:

despite its relatively brief existence, cryptocurrency technology plays a role in many of the most significant criminal and national security threats that the United States faces. For example, cryptocurrency is increasingly used to buy and sell lethal drugs on the dark web

Doubling down on this example, the DOJ also claims:

Criminals use cryptocurrency to facilitate crimes and to avoid detection in ways that would be more difficult with fiat currency or “real money.” They can avoid large cash transactions and mitigate the risk of bank accounts being traced, or of banks notifying governments of suspicious activity

This of course completely ignores the practical reality that cash transactions are more difficult to trace by orders of magnitude than the vast majority of digital asset transactions (aside from privacy coins), with the vast majority of illegitimate market activity on digital assets occurring on entirely traceable blockchain protocols like Bitcoin and Ethereum. While privacy centric coins have been claimed to have infinite uses for criminals, time and time again criminals appear to show a preference for blockchains that enjoy deeper liquidity and more reliable networks.

The Department explores the legitimate uses for digital assets over a whole 2 paragraphs (peppered liberally with "claim" and "may"), but then goes on to assign the following 15 odd pages to illicit uses. One of which apparently includes the use of any "anonymity enhancing cryptocurrencies" (AECs) which the Department considers to be a "high-risk activity that is indicative of possible criminal conduct". Interestingly, the Department notes that when it seizes AECs following an investigation, it does not liquidate the seized or forfeited AECs, on the basis that doing so allows those AECs to re-enter the stream of commerce "for potential future criminal use".

Frustratingly, the various case studies included in the report setting out the Departments experience of cryptocurrencies in investigations, which includes the cases against 'Welcome to Video', 'Lazarus Group', among others, makes no mention of the significant contribution made by blockchain analysis companies like Chainalysis. The narrow focus on the "dark side" of cryptocurrency completely ignores the reality that cryptocurrency with immutable public ledgers is a terrible system for illegal value transfer and an excellent tool for regulators. Had the perpetrators of these various illegal schemes paid in cash or another means, the critical blockchain analysis which contributed to their resolution would never have been possible.

All of the above builds to the Department of Justice's claim that it has and will exert the authority to prosecute any foreign actors, including those unconnected with the US in any way, who use digital assets to support terrorist activities, on the basis that:

if conduct involving virtual currency were to violate the U.S. statutes regarding material support of terrorism, the U.S. government could appropriately assert jurisdiction over such offenses anywhere in the world, consistent with due process, under the principle of protective jurisdiction.

Or, put another way:

Where a malign actor’s conduct involving cryptocurrency amounts to providing material support to a designated foreign terrorist organization, that actor engages in conduct that threatens the security of the United States, and therefore subjects himself (or itself) to the jurisdiction of our Nation’s courts

This is a timely reminder that operating jurisdiction or forum shopping is unlikely to save any would-be money launderers from a determined Department of Justice. Money launderers, your game is through.

© Michael Bacina. All rights reserved

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