DOJ Along With US Attorney General Take Hard Stance On Privacy Coins, US, Foreign Crypto Firms And Crypto Laws
The US government says they have broad extraterritorial jurisdiction over crypto-related businesses. DOJ Along With US Attorney General Take Hard Stance On Privacy Coins, US, Foreign Crypto Firms And Crypto Laws
The Cryptocurrency Enforcement Framework issued by the U.S. Department of Justice stipulates a number of cases where it will exert its authority over foreign actors: “where virtual asset transactions touch financial, data storage, or other computer systems within the United States”, if they use cryptocurrency to import illegal products into the U.S. and if they “provide illicit services to defraud or steal from U.S. residents”.
This also applies to foreign entities that engage in money transmission in the country even if they are incorporated abroad.
Additionally, the Department claims to have the authority to prosecute any foreign actors who use cryptocurrency to support terrorist activities:
“Finally, it bears emphasizing 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.”
The report also cites Zcash, Monero, and DASH usage as “indicative of possible criminal behavior.”
As a motivation for the framework, the report purports that “rogue states’ like Russia, Iran and North Korea may use cryptocurrency to fund cyberattacks intended to undermine the U.S. national security. In addition, it alleges that “certain terrorist groups have solicited cryptocurrency donations running into the millions of dollars via online social media campaigns.”
US Attorney General Releases Guidelines For Enforcing Crypto Laws
Regulation and guidance continue to come in hot from the land of the free.
William Barr, the attorney general for the U.S., published official guidelines for keeping crypto markets accountable.
The lead U.S. attorney’s Cyber-Digital Task Force put together the guidelines, officially calling them: Cryptocurrency: An Enforcement Framework, according to an Oct. 8 statement from the U.S. Department of Justice.
The Statement Explained:
“The Framework provides a comprehensive overview of the emerging threats and enforcement challenges associated with the increasing prevalence and use of cryptocurrency; details the important relationships that the Department of Justice has built with regulatory and enforcement partners both within the United States government and around the world; and outlines the Department’s response strategies.”
The new guidelines come after the DoJ and the U.S. Commodity Futures Trading Commission went after crypto derivatives exchange BitMEX, citing multiple illegal activities.
“Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society,” Barr said in the statement. “Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.”
The statement also conveyed various comments from other authorities, noting both the technology’s potential for innovation, as well as its use in nefarious dealings.
The lengthy report itself included 83 pages of content on crypto, its “legitimate uses,” its “illicit uses,” applicable regulating bodies, and a game plan going forward.
Among the mentioned categories within the crypto space, the report pointed out privacy assets. The Department of Justice specifically name-checks Zcash, Monero and DASH usage as “indicative of possible criminal behavior.”
The report continued by asserting U.S. jurisdiction over individuals whose crypto transactions interact with U.S.-based servers.
The burgeoning crypto and blockchain space is a complicated one, as the report also noted while pointing out criminal activities such as pump and dumps — an age-old illegal tactic from the stock market, modernized through crypto.
Among its listed legitimate crypto use cases, the framework included payments for goods and services, void of third parties.
“Proponents of cryptocurrency contend that, by eliminating the need for financial intermediaries to validate and facilitate transactions, cryptocurrency has the potential to minimize transaction costs and to reduce corruption and fraud,” the document explained, while subsequently pointing toward the asset class as an inflation hedge.
In contrast to the above-board use cases it mentioned, the report also detailed activities it claimed as illicit, such as drug transactions. I posited illegal digital asset activities commonly occur under three separate wings: funding illegal substances, product sales or activities, money laundering and tax evasion, and crypto-specific hacking or fraud.
In its conclusion, the report called for collaboration with other governing bodies and participants across the U.S. and the globe.
“To promote public safety and protect national security, all stakeholders — from private industry to regulators, elected officials, and individual cryptocurrency users—will need to take steps to ensure cryptocurrency is not used as a platform for illegality. Indeed, for cryptocurrency to realize its truly transformative potential, it is imperative that these risks be addressed.”
DOJ Says Use Of Privacy Coins Is ‘Indicative Of Possible Criminal Conduct’
Privacy coins are getting more attention than ever from the U.S. government.
A new report from the U.S. Department of Justice alleges that crypto traders dealing with coins like Monero, Dash, and Zcash are engaging in “high-risk activities.”
According to the report by the U.S. Attorney General’s Cyber Digital Task Force called Cryptocurrency: An Enforcement Framework released on Oct. 8, anonymity enhanced cryptocurrencies (AECs) can undermine existing anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations put in place by businesses engaged in virtual asset activities. The task force cited coins including Monero (XMR), Dash (DASH), and Zcash (ZEC).
“The Department considers the use of AECs to be a high-risk activity that is indicative of possible criminal conduct,” the report stated. “AECs are often exchanged for other virtual assets like Bitcoin, which may indicate a cross-virtual-asset layering technique for users attempting to conceal criminal behavior.”
According to the report, privacy coin holders can obfuscate the origin of their tokens using mixers, tumblers and chain hopping, undermining AML and CFT.
Chain hopping, which the DOJ claims is “frequently used by individuals who are laundering proceeds of virtual currency thefts,” involves swapping one’s crypto holdings for others operating on a different blockchain like Bitcoin (BTC) and Ethereum (ETH).
Mixers and tumblers make it difficult for investigators to trace funds by mixing crypto holdings from multiple traders before they’re sent to the appropriate wallet. The report cited a privacy tool called Helix, whose alleged administrator was arrested in February for laundering more than $311 million worth of Bitcoin.
“Operators of these services can be criminally liable for money laundering because these mixers and tumblers are designed specifically to ‘conceal or disguise the nature, the location, the source, the ownership, or the control’ of a financial transaction.”
Released today, the DOJ report itself is 83 pages of official guidelines for keeping crypto markets accountable in the United States. Among the more noteworthy assertions in the report is the department claiming jurisdiction over individuals whose crypto transactions interact with U.S.-based servers.
Community Reacts To New DoJ Crypto Enforcement Guidelines
The DoJ’s guidance around cryptocurrency enforcement, that cites “crime” and “criminals” 168 times, has been poorly received.
The new cryptocurrency enforcement guidelines by the Department of Justice (DoJ) have received a negative response from segments of the crypto community.
Published earlier today by the attorney general for the U.S. William Barr, the DOJ report aims to address the “uniquely dangerous threats to public safety” cryptocurrency poses.
Citing the words “crime” or “criminal” 168 times in the 83-page document, many in the community have interpreted the DoJ’s position as a direct attack on crypto that labels the entire sector as an avenue for crime.
Coinshares’ CSO Meltem Demirors described the policy document as “a commercial reel of every financial crime known in crypto,” asserting that the DoJ’s over-emphasis on providing examples of criminal use-cases for crypto fails to address the myriad of legitimate utilities for crypto assets.
This sentiment was echoed by many on Twitter, with fairly typical response coming from ‘CryptoPennyCO25’ who believes the DoJ report is simply trying to paint crypto in a bad light:
Justice Department with more negative spin on how cryptocurrency is a tool of terrorists, rogue regimes, criminals, etc. and the importance of enforcing the laws against such activity. ♂️ https://t.co/fSrgs4lo5b
— CryptoPennyCO ♂️ 2025 (@CryptoPennyCO) October 8, 2020
Some in the Ripple (XRP) community took umbrage at a line in the report that states: “Ripple Labs willfully violated several requirements of the [Bank Secrecy Act] BSA.”
Ripple CEO Brad Garlinghouse suggested the report, and the overall U.S. approach, fell a long way short from providing clear guidance:
“An 70+ page contradictory report is not regulatory clarity — many responsible private players are trying to follow the rules, but that becomes increasingly hard when there’s no single arbiter of the law.”
Agreement echoed throughout the XRP Army with Twitter user Massimo saying that the report is another spin on the, “non-sensical merry go round that doesn’t address what we really need here for the space to mature and progress in an organic, safe and meaningful way.”
Earlier this week, Ripple co-founder Chris Larsen said the firm is considering moving to the U.K., Switzerland, Singapore, or Japan due to the government’s lack of regulatory clarity.
This new framework by the DoJ might fast-track Ripple’s decision — and Garlinghouse suggested other companies may follow suit. He added that unless clearer guidelines are provided, “companies will move their investment (or whole company) overseas.”
However not everyone in the crypto community was against the new framework. General counsel for Compound Jake Chervinsky identified it as a positive development:
“Guidance like this doesn’t come often & is very helpful for understanding the government’s regulatory & law enforcement priorities. We should all read this closely.”
DOJ’s Crypto Framework Is ‘A Complete Disaster’ For Digital Privacy Rights
The U.S. Department of Justice’s (DOJ) recent crypto enforcement framework is a threat to digital privacy rights, according to an attorney for the Electronic Frontier Foundation (EFF).
“It was a complete disaster for privacy and anonymity and civil liberties in the cryptocurrency space,” said Marta Belcher, special counsel to the digital rights advocacy group.
The framework, released earlier this month, details the U.S. government’s approach to crimes committed using cryptocurrencies, but also appears to define some broad policy positions on crypto and crypto exchanges more generally.
Belcher, who is an attorney with Ropes and Gray and an outside counsel to Protocol Labs, said the framework released earlier this month raises many concerns about privacy rights, pointing to language on peer-to-peer exchanges, mixers/tumblers and “anonymity enhanced cryptocurrencies” (privacy coins).
In Belcher’s view, there are a number of legal concerns with the crypto enforcement framework as laid out by the DOJ’s Cyber Digital Task Force. Language in the framework would appear to have implications for individuals sending cryptocurrencies to one another, as well as exchangers offering transactions as a service.
The enforcement framework even had a section on mixers and tumblers, noting that entities qualifying as money services businesses are subject to the BSA or “similar international regulations.”
The DOJ’s arguments against cryptocurrencies are similar to those made against encryption, another law enforcement boogeyman. The DOJ, alongside other members of the “Five Eyes” intelligence alliance plus India and Japan published a statement calling for backdoor access to encrypted messaging services and other systems last weekend.
The statement reflects law enforcement agencies’ “fundamental discomfort” with any technology that could allow for private interactions, said Jake Chervinsky, general counsel at Compound Finance.
The enforcement framework is “making exactly the same argument you’ve seen being made for decades about encryption,” Belcher told CoinDesk. “These are the exact same arguments that are against encryption and they’re coming from the exact same place as the fight against encryption.”
The intelligence agencies claim backdoors in encrypted protocols and systems would make it easier to identify and prosecute crimes committed using privacy-protecting tools (including cryptocurrencies).
This statement ignores the technical realities of building strong encryption, he noted.
“The Five Eyes [coalition continues] to overlook a few basic points about encryption: first, that strong encryption itself enhances public safety and prevents crime by protecting people and their data; second, that it’s impossible to build backdoors into encrypted systems without creating extraordinary new cybersecurity risks; and third, that cryptography tools are increasingly open-source and can’t be easily cabined or controlled at their request,” he said.
Many cryptocurrency companies and developers, for example, wouldn’t be able to comply with the backdoor requests because of this open sourcing, he said.
According to the DOJ’s crypto framework, a P2P exchanger is considered a money services business, which means it is required to abide by recordkeeping and reporting requirements as defined by the Bank Secrecy Act (BSA) and other regulations if they buy or sell convertible virtual currencies.
The framework defines individual exchangers as individuals who provide crypto transaction services to others, but Belcher believes it could be used to apply to two individuals who just transact between each other – not just individuals acting as service providers.
“Individual exchangers – as well as platforms and websites – that fail to collect and maintain customer or transactional data or maintain an effective AML/CFT program may be subject to civil and criminal penalties,” the framework said, referring to anti-money laundering/combating the financing of terrorism regulations.
The distinction is between “software providers” and “service providers,” Chervinsky said. Software providers, which compose a large part of the crypto industry, deploy decentralized protocols and publish open-source projects that the writers cannot control or modify. Service providers, on the other hand, offer “permissioned, proprietary platforms” that the operators can control.
In Belcher’s view, the crypto framework puts both individuals who write code for peer-to-peer transactions as well as those who use this code at risk for enforcement actions.
“There’s liability on people using these exchanges in order to exchange cryptocurrencies anonymously with others,” she said. “To say I can’t send you cryptocurrency using a script, you and I can’t transact with each other directly in a peer-to-peer way without that data being collected somewhere by a third party is a complete affront to privacy and civil liberty.”
Individuals can easily conduct similar transactions using cash, she said. “No one questions that I can hand you money without there needing to be a written record of that.”
The framework also took aim at privacy coins and other tools to obfuscate transactions, like mixers and tumblers. Belcher said it is wrong to focus on whether privacy coins can be compliant with the BSA and other laws.
Cryptocurrencies could potentially transfer the privacy protections that come from cash transactions and shift them online, she said.
“The thing that is so important for me is that you can transact anonymously and you can take the protections of cash and you can transfer that to the online world,” she said.
“The idea that merely by exercising your right to transact anonymously is indicative of you committing a crime is wrong in my view.”
The U.S. government followed the framework with its first enforcement action against a bitcoin mixer just 11 days later, when the Financial Crimes Enforcement Network (FinCEN) fined Larry Dean Harmon, the alleged operator of a mixer, $60 million for his operations.
However, that particular case doesn’t have major implications for mixing software more generally, said Carlton Fields attorney Andrew Hinkes on Twitter.
“The facts here are egregious and ghastly. A service provider that profits from software that provides money transmission services must comply, must keep records, and must report. Plain as day, and should be obvious by now,” he wrote, pointing to various facts in the case, including the operator’s boasting of transaction privacy for customers, transactions conducted for Iran-affiliated accounts and payments facilitated for at least one child exploitation site.
Chervinsky agreed, noting that Harmon was treated like a service provider, not a software provider.
It’s possible the DOJ’s framework can help contribute to financial censorship, an ongoing issue within the U.S., Belcher said.
Traditional payments giants surveil and censor a number of transactions, including innocuous ones that might upset certain sensibilities.
“There are all these examples of a kinky bookstore or a nonprofit that supports LGBT fiction getting their accounts shut down by Visa and Mastercard, and also famously things like WikiLeaks that then turn to cryptocurrency when they can’t be served by the financial intermediaries that are censoring that,” she said.
These transactions aren’t illegal, Belcher noted.
A cashless society is effectively a surveillance society in this respect, she said.
Actual crimes committed using cryptocurrencies should be prosecuted, and it’s a benefit to the crypto community when they are, she said.
The DOJ report included dozens of examples of crimes that were committed using or at some point touching on cryptocurrencies, including several recent high-profile cases.
However, blaming cryptocurrencies for their use in crimes does not make sense, she said.
“I think they’re missing that cash has always been used to facilitate illegal activity,” she said. “We don’t blame Ford when one of its cars is used as a getaway vehicle in a bank robbery.”
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