DOJ Classifies Crypto as an 'Emerging Threat'

October 16, 2020 12:26 PM
Crypto story of the day





Crypto is weak this morning, following the strange news that OKEx has suspended crypto withdrawals. Spot volumes have been above recent averages since the announcement.

Crypto Story of the Day

The U.S. Department Of Justice (DoJ) recently published an 83-page report on crypto, identifying the space as an “emerging threat” and “enforcement challenge." According to the report, the DoJ’s oversight related to crypto focuses on money services businesses (MSBs) and virtual asset service providers (VASPs).

The report reminds that entities offering “money transmitting services involving virtual assets,” are considered MSBs. Regarding exchanges, the report affirms that any venue — even those that don’t accept fiat currency and are based offshore but do business in some capacity in the U.S. — must register with the U.S. Treasury's Financial Crimes Enforcement Network.

Regarding peer-to-peer trading, the report explains that "Individual exchangers - as well as platforms and websites’ that don't adhere to regulations, may be subject to civil and criminal penalties." Operators of mixers and tumblers, services meant to obfuscate the transactional history of a coin, can be ‘criminally liable for money laundering’ given their explicit purpose.

In relation to fractured regulatory approaches across jurisdictions, the report explains that VASPs applying different standards to US customers or crypto-to-crypto transactions vs crypto-to-fiat, are in violation of the Bank Secrecy Act. The report claims that the DoJ has ‘robust authority to prosecute VASPs’ and others even when located outside the U.S. Jurisdiction may be established when ‘virtual asset transactions touch financial, data storage, or other computer systems within’ the U.S. 

The fact that crypto has been on the radar of U.S. politicians hasn’t been a secret. President Trump, for example, is alleged to have told Treasury Secretary Steven Mnuchin to “Go after Bitcoin [for fraud].”The report also largely reiterates what we’ve known to be true of the US justice system’s view on crypto. High profile cases involving BitMEX, Bitfinex / Tether, KIK, and Telegram have shown that U.S. prosecutors clearly feel they have jurisdiction over non-U.S. domiciled businesses. This report, where the DoJ claims jurisdiction even if a transaction touches U.S.-based infrastructure, suggests readiness to go to great lengths to prosecute alleged law-breaking in crypto. These great lengths could include applications of jurisdiction that serve to reflect the nature of cryptocurrency offerings. For example, prosecutors may argue that a crypto project’s use of U.S.-based social media to market an asset, despite barring U.S. residents to invest, is enough to establish jurisdiction. In any case, the report suggests the DoJ sees much of crypto within some sort of striking distance.

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