In my article, Human Trafficking Digital Crimes, AML-ology, 2 Aug 2022 (active membership required to view – Enthusiast level is free), I discussed Executive Order (EO) 14067, “Ensuring Responsible Development of Digital Assets,” 9 Mar 2022, which stated that digital assets may pose significant illicit finance risks, including money laundering, cybercrime and ransomware, narcotics and human trafficking, and terrorism and proliferation financing. The Department of Justice (DOJ) report, How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets, 6 Jun 2022, was the first of several reports mandated in EO 14067.
On 16 Sep 2022, DOJ released a report pursuant to EO 14067, Section 5(b)(iii), The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets. The report reiterates that criminals rely on, among other factors, the perceived anonymity of cryptocurrency to buy and sell illegal drugs, to advertise and promote human trafficking, to collect ransomware payments, to perpetrate frauds and thefts against consumers and investors, and to finance threats to national security—including terrorist fundraising and malicious rogue state activity.
Key Aspects of the Report
The report identifies three main categories of illicit uses of digital assets: (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 announces that as part of its efforts, Treasury’s Internal Revenue Service-Criminal Investigation (IRS-CI) is establishing an Advanced Collaboration and Data Center (ACDC) in Northern Virginia to improve investigations into the use of digital currencies in illicit activities, including unauthorized computer intrusions, human trafficking, and drug trafficking. The ACDC will be a mission-centric hub for specialized personnel, data, and technology within the IRS, the Treasury Department as a whole, and partnering agencies, with the objective of providing both a common focus area and a value-added resource. The ACDC integrates the Eastern Cyber Crime Unit (CCU) (Washington D.C Field Office) and the Cyber Support Unit.
The report includes a section on the DOJ Criminal Division’s launch of the nationwide Digital Asset Coordinators (DAC) Network. The National Cryptocurrency Enforcement Team (NCET), tasked with tackling complex investigations and prosecutions of criminal misuses of digital assets, will lead the DAC. The DAC is composed of designated federal prosecutors across U.S. Attorneys’ Offices nationwide who will act as their office’s subject-matter expert on digital assets. The DOJ will equip these prosecutors with the tools necessary to apply existing authorities and laws to digital assets and teach best practices in combating criminal activity in the digital asset space. Each DAC will serve as a go-to source for legal and technical matters related to digital assets.
In the proposed legislation priority proposals section, the DOJ supports legislation to eliminate the gap between the definitions of “financial institution” in the Bank Secrecy Action (BSA) and the two statutes governing subpoenas (18 U.S.C. § 20 and 12 U.S.C. § 3401). The BSA’s broader definition covers virtual asset service providers (VASPs) that operate as money services businesses (MSBs) and imposes anti-money laundering and countering-the-financing-of-terrorism (AML/CFT) obligations upon them while the statutes’ definitions do not.
Other proposals include broadening statute that criminalizes operation of unlicensed money transmitter, extending statute of limitations, amending venue provisions to allow for prosecution in any district where the victim of a digital assets-related offense or other cybercrime is found, expanding forfeiture powers, enhancing sentencing guidelines, and applying recordkeeping and travel rule regulations under the BSA to transactions involving convertible virtual currency and digital assets.
The above is worth your review for potential business impact given the possibility of congressional action. This might include assessing compliance plans and potential touchpoints to ensure you are well-positioned to address areas of concern identified by the DOJ as it is asking for, and appears willing to impose, steeper criminal penalties for violations. Additionally, the DAC builds upon the creation of the NCET and foreshadows increased enforcement efforts to root out bad actors.