The DOJ’s review to thwart money laundering


The Justice Department is aggressively scrutinizing cryptocurrency market participants – including “financial institutions working with cryptocurrency” – to thwart the use of technology as a vehicle for money laundering and fraud. ‘other illegal activities.

Even as cryptocurrency becomes more mainstream, it is the primary request mechanism for ransomware payments, typically underpins the operation of illegal or unregistered money services businesses, and is the preferred medium of exchange for value on the “dark web” against drugs, weapons and malware and other hacking tools.

On October 6, the Department of Justice (DOJ) announced the creation of a National Cryptocurrency Enforcement Team (NCET). According to the press release from the Department of Justice, the NCET “will tackle complex investigations and prosecutions of criminal cryptocurrency abuses, in particular crimes committed by virtual currency exchange services, mixing and of tumble. [which mix identifiable cryptocurrency funds with others to prevent tracing], and players in money laundering infrastructures. NCET will also focus on recovering illicit proceeds hidden in the form of cryptocurrency.

The press release from the Department of Justice uses particularly disturbing language to announce the new unit: “Today, we are launching the National Counter-Cryptocurrency Team to leverage the Department’s expertise in cryptocurrency. cybercrime and money laundering to strengthen our ability to dismantle the financial entities that allow criminal actors to thrive. – and quite frankly to profit – from the abuse of cryptocurrency platforms, ”said Monaco’s Deputy Attorney General. “As technology advances, the Department must also evolve with it so that we are prepared to eliminate abuse on these platforms and ensure user confidence in these systems. “

The NCET is the department’s most direct response to date in the fight against cryptocurrency as a tool for crime. In 2018, the Money Laundering and Asset Recovery Section (MLARS) of the Criminal Division of the Ministry of Justice established a digital currency initiative focused on providing support and advice to investigators. , prosecutors and other government agencies on cryptocurrency prosecutions and confiscations, mainly in the form of education and training. around the transmission, storage and functionality of cryptocurrencies. In October 2020, the DOJ released a Cryptocurrency Enforcement Framework that outlines the potential threats posed by cryptocurrencies and summarizes the relevant laws and authorities.

Unlike the Initiative and Framework, which focused on ministry-wide educational outreach, NCET’s mandate is to identify and prosecute cryptocurrency cases. In doing so, the NCET will identify areas requiring increased attention to investigations and prosecutions and develop strategic priorities for cryptocurrency investigations. Priority targets already identified include the familiar list of bad actors or companies in this space: professional money launderers, ransomware programs, human traffickers and drug traffickers. However, the NCET also included “financial institutions working with cryptocurrency” on this list. The inclusion of financial institutions in a list that otherwise names criminal actors suggests a distrust, if not deep skepticism, in the DOJ of the fundamental legitimacy of cryptocurrency activity. This is a long way from the introduction of the Framework, which recognized that distributed ledger technology, the technology behind cryptocurrencies, “opens up breathtaking possibilities for human flourishing.”

Outside of the DOJ, other government agencies have also reported increased attention to the application of cryptocurrency. In September, the SEC issued a notice from Wells to a cryptocurrency exchange threatening to sue if the company went ahead with its plans for a cryptocurrency lending program, alleging it would amount to selling off unregistered titles. Weeks later, securities regulators in New Jersey and Texas made the same allegations against an existing cryptocurrency lending program, signaling serious concerns about the product’s lack of oversight and disclosure to its users. In June, FinCEN included cryptocurrency in its national anti-money laundering priorities and appointed its first-ever digital currency advisor in July. This year, both Florida and Arkansas updated their state money transmission regulations to explicitly include cryptocurrency.

Financial institutions can alleviate the concerns of regulators by updating and improving their existing anti-money laundering (AML) and risk-based financial crimes compliance programs to include cryptocurrency monitoring and reporting. However, new businesses, and FinTech companies in particular, should consider implementing their own anti-money laundering and financial crime compliance programs, including transaction monitoring, due diligence. with regard to customers and verification of counterparties. FinTech companies in banking partnerships can rely on their banking partner’s compliance program, but will need to work with the bank to ensure that the existing compliance infrastructure sufficiently addresses product risks and cryptocurrency services offered by the financial technology company.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.Revue nationale de droit, volume XI, number 287


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