Source: United States Department of Justice News
The Department of Justice today announced significant actions regarding digital assets, including the public release of its report, pursuant to the President’s March 9 Executive Order on Ensuring Responsible Development of Digital Assets, on The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets;[1] and the establishment of the nationwide Digital Asset Coordinator (DAC) Network, in furtherance of the department’s efforts to combat the growing threat posed by the illicit use of digital assets to the American public.
“As digital assets play a growing role in our global financial system, we must work in tandem with departments and agencies across government to prevent and disrupt the exploitation of these technologies to facilitate crime and undermine our national security,” said Attorney General Merrick B. Garland. “The efforts announced today reflect the commitment of the Justice Department and our law enforcement and regulatory partners to advancing the responsible development of digital assets, protecting the public from criminal actors in this ecosystem, and meeting the unique challenges these technologies pose.”
As noted in the White House Fact Sheet, these efforts are part of a larger, collaborative effort across government agencies “to develop frameworks and policy recommendations that advance six key priorities identified in the EO: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.”
“Developments in digital assets have created a new landscape for criminals to exploit innovation to further significant criminal and national security threats domestically and abroad,” said Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division. “Through the creation of the DAC Network, the Criminal Division and the National Cryptocurrency Enforcement Team will continue to ensure that the Department and its prosecutors are best positioned to combat the ever-evolving criminal uses of digital asset technology.”
First, in response to the March 9 Executive Order, the department’s report discusses the manner in which illicit actors are exploiting digital asset technologies; the challenges that digital assets pose to criminal investigations; initiatives that the department and law enforcement agencies have established as part of whole-of-government efforts to more effectively detect, investigate, prosecute, and otherwise disrupt these crimes; and recommended regulatory and legislative actions to further enhance law enforcement’s ability to address digital asset crimes.
Second, the department’s Criminal Division has launched the DAC. Led by the department’s National Cryptocurrency Enforcement Team (NCET), the DAC Network comprises over 150 designated federal prosecutors from U.S. Attorneys’ Offices and across the department’s litigating components, and will serve as the department’s primary forum for prosecutors to obtain and disseminate specialized training, technical expertise, and guidance about the investigation and prosecution of digital asset crimes. The Director of the NCET, Eun Young Choi, chaired the DAC Network’s first meeting on September 8.
Reports on Ensuring Responsible Development of Digital Assets
The department’s report on the Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets begins by detailing the many ways in which illicit actors have exploited digital assets. It delineates three principal categories of illicit uses: 1) cryptocurrency as a means of payment for or manner of facilitating criminal activity; 2) the use of digital assets as a means of concealing illicit financial activity; and 3) crimes involving or undermining the digital asset ecosystem. The report also discusses how novel technology, particularly in the area of decentralized finance, or DeFi, has created new challenges for law enforcement; includes examples of successful law enforcement efforts to investigate, prosecute, and otherwise disrupt digital asset crimes in spite of the investigative challenges; and describes initiatives that the department and other law enforcement agencies have established—including the department’s launch of the DAC Network—to more effectively detect, investigate, prosecute, and otherwise disrupt crimes relating to digital assets, and to seize and forfeit those assets that constitute ill-gotten gains.
The report also addresses the Executive Order’s request for recommendations on appropriate regulatory and legislative actions. It proposes actions designed to enhance law enforcement’s ability to gather evidence and initiate prosecutions; strengthen certain laws and penalty provisions that play an important role in digital asset prosecutions; support regulations that would enhance customer-identification efforts and other anti-money-laundering requirements under the Bank Secrecy Act; and ensure that law enforcement and regulatory agencies have adequate resources to conduct the technologically sophisticated investigations inherent in the digital assets space. The report identifies three proposals as priorities: 1) expanding to virtual asset service providers the laws preventing employees of financial institutions from tipping off suspects to ongoing investigations; 2) strengthening the law criminalizing the operation of unlicensed money transmitting businesses; and 3) extending the statute of limitations of certain statutes to account for the complexities of digital assets investigations.
This report complements the June 2022 report issued by the department on How to Strengthen International Law Enforcement Cooperation for Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets, which details the unique challenges posed by cross-border digital asset investigations, and includes recommendations on how to bolster enforcement and improve international cooperation in the area. In line with the whole-of-government approach called for in the Executive Order, both reports are the culmination of collaborative efforts between the department, led by the NCET, and multiple federal agencies, including the Department of the Treasury, the Department of Homeland Security, and the Department of State.
The Digital Asset Coordinators Network
To ensure that the department continues to meet the challenge posed by the illicit use of digital assets, the department’s Criminal Division recently launched the nationwide DAC Network. Led by the NCET, in close coordination with the Criminal Division’s Computer Crime and Intellectual Property Section and the Money Laundering and Asset Recovery Section’s Digital Currency Initiative, the DAC Network is composed of designated federal prosecutors from U.S. Attorneys’ Offices nationwide and the department’s litigating components. Each DAC will act as their office’s subject-matter expert on digital assets, serving as a first-line source of information and guidance about legal and technical matters related to these technologies.
As members of the DAC Network, prosecutors will learn about the application of existing authorities and laws to digital assets and best practices for investigating digital assets-related crimes, including for drafting search and seizure warrants, restraining orders, criminal and civil forfeiture actions, indictments, and other pleadings. The DAC Network will also serve as a source of information and discussion addressing new digital asset issues, such as DeFi, smart contracts, and token-based platforms, and their use in criminal activity. The DAC Network will likewise raise awareness of the unique international considerations of the crypto ecosystem, including the benefits of leveraging foreign relationships and the challenges of cross-border digital asset investigations.
[1] In addition to the report, and in further response to the Executive Order, the Attorney General separately transmitted to the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy, via the White House Counsel’s Office, an assessment from the Department of whether legislative changes would be necessary to issue a CBDC, should it be deemed appropriate and in the national interest.