Law enforcement operation is being consolidated to convey a clear message to the industry: it is time to comply.
At the Munich Cyber Security Conference on Feb. 17, US Deputy Attorney General Lisa Monaco announced the launch of a new task force under the Federal Bureau of Investigation “focused to cryptocurrency” (FBI). This comes four months after the Justice Department’s National Cryptocurrency Enforcement Team (NCET) was established, signalling yet another big step forward in the US government’s fight against illegal cryptocurrency exploitation.
What will the task force look like?
The Virtual Asset Exploitation Unit is the name of the new task force disclosed by Monaco (VAXU). It will bring together FBI professionals with crypto knowledge from multiple sections to conduct blockchain-based investigations that could lead to the seizure of virtual assets. Although there are currently few specifics about the VAXU’s operation, Monaco made it plain in her speech that the fight against cyber ransomware is the top priority:
“Ransomware and digital extortion, like many other cryptocurrency-fueled crimes, only work if the bad guys get paid, so we have to disrupt their business model […] Although the currency is virtual, the message to businesses is clear: if you report to us, we can track the money and not only assist you, but also help prevent the next victim.”
The VAXU also intends to collaborate with foreign task forces in order to track down global criminal networks that operate in the cryptocurrency space.
Relationship with NCET
Despite its primary association with the FBI, VAXU will be a member of the National Cryptocurrency Enforcement Team (NCET), which will begin operations in October 2021 to combat money laundering and cybercrime. The NCET’s aim is to “address complex investigations and prosecutions of illegal misuses of cryptocurrencies, including crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure operators,” according to the official statement.
The NCET’s objective includes investigating and prosecuting cryptocurrency cases, identifying areas for additional investigative and prosecutorial focus, engaging with industry stakeholders, and creating partnerships with crypto-adjacent departments and officers across the law enforcement system.
In essence, the NCET has a mandate to engage in practically any relevant case, regardless of who is conducting the investigation. With the inclusion of the FBI-backed VAXU, the unit’s capabilities will be expanded even further, solidifying its position as one of the most important forces in the crypto law enforcement game.
The new look of NCET
Eun Young Choi, a former senior attorney to the Deputy Attorney General, was named to oversee the NCET on February 17. Choi worked for the United States Attorney’s Office for the Southern District of New York for almost nine years as the cybercrime coordinator, where she dealt with cryptocurrency while investigating money laundering operations and online fraud.
Choi, for example, was the lead prosecutor in the case of Coin.mx, an unregulated cryptocurrency exchange whose operator, Anthony Murgio, was sentenced to 66 months in prison. She also successfully argued the case against Ross Ulbricht, the Silk Road’s founder, who has been serving back-to-back life sentences since 2015.
Sujit Raman, a lawyer in Sidley Austin’s privacy and cybersecurity group, emphasised the uniformity of the current US law enforcement strategy. The Department of Justice declared publicly in 2018 that “cybercriminals are increasingly using virtual currencies to advance their activities and conceal their assets,” and that it would “continue evaluating the emerging threats posed by rapidly developing cryptocurrencies that malicious actors frequently use.”
The Trump Administration published a detailed crypto enforcement policy in October 2020 after a thorough internal assessment and research. As Raman pointed out:
“As a result, the NCET’s debut and the FBI’s Virtual Asset Exploitation Unit are significant and crucial expansions on lines of thought that high officials have been pursuing for some time, across administrations.”
Synergies in the executive suite
According to Michael Bahar, chair of global law firm Eversheds Sutherland’s Cybersecurity practise, the potential cooperation between the DOJ and other regulatory authorities will have a synergetic effect. Bahar had this to say:
“The Department of Justice’s growing experience and expertise will permeate to regulators such as the Securities and Exchange Commission and financial regulators.” Indeed, we should now anticipate the Department of Justice to deepen its collaboration with state and local law enforcement and regulatory agencies in the United States and around the world.”
As Raman explains, the DOJ already has relationships with agencies like the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Internal Revenue Service (IRS), and while there are limits to how much criminal enforcers can collaborate with civil regulators, “those partnerships will only continue to deepen.” The DOJ and its task forces, however, will not, in Raman’s judgement, influence the real rulemaking around digital assets:
“The Department of Justice is a law enforcement agency. It is unlikely to play a substantial role in the development of a regulatory framework to control the crypto business as a whole.”
These changes, according to both experts, represent no threat to the legitimate crypto sector. Capable law enforcement, on the other hand, can assist in moving it forward toward becoming a more transparent and secure investment environment.
The DOJ’s activity sends a clear message: it’s time to comply. “If you engage in cryptocurrency, you must demonstrate that you can do so in a compliant manner, calibrating your compliance procedures to the specific risks that cryptocurrencies and the underlying blockchain technology present,” added Bahar.
While the fast-growing crypto economy is here to stay, law enforcement is adapting its techniques in response, as seen by the continued centralization and coordination of federal law enforcement’s investigative and prosecutorial operations in the virtual currency area.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.