On October 8, 2020, the US Department of Justice (“DOJ”) released the publication “Cryptocurrency: An Application Framework,” (“Framework”) which describes the emerging threats and application challenges associated with cryptocurrency. The DOJ Digital Cyber Task Force produced the Framework to highlight important relationships the DOJ has built with other national and international regulatory and enforcement partners, and its strategic response to address emerging issues related to cryptocurrency and blockchain technology or “Distributed reason” underlying it.
The Structure's stated objective is to ensure that cryptocurrencies and associated technologies are secure and do not jeopardize public or national security. Although the DOJ explicitly recognizes the potential of cryptocurrency in the Framework, it also describes the illicit threats and opportunities that the cryptocurrency provides for nefarious actors. The Framework is divided into three parts.
Part I of the Framework begins with an overview of the potential threats posed by the use of cryptocurrency and an acknowledgment of the unique challenges it presents due to the inherent resources that may allow illicit use (decentralized operation and a high degree of anonymity). While also describing the legitimate uses of cryptocurrency (for example, allowing worldwide transfers of value without using a financial intermediary, thereby minimizing transaction costs), the report goes on to identify three categories into which illicit uses of a cryptocurrency typically fall:
- Financial transactions associated with the commission of crimes, such as buying and selling drugs or weapons on the dark web, renting servers to commit cybercrimes or soliciting funds to support terrorist activities;
- Money laundering and illegal protection of legitimate tax activities, reporting obligations or other legal requirements; or
- Crimes that directly involve the cryptocurrency market, such as stealing cryptocurrencies from exchanges through hacking or defrauding investors through the use or promise of cryptocurrencies.
Part II of the Framework describes the legal and regulatory tools available to the DOJ to address these threats. The section describes typical federal crimes accused of misconduct involving cryptocurrency and highlights the DOJ's goal of promoting enforcement by leveraging relationships with other federal regulatory and supervisory agencies, such as the Securities and Exchange Commission ("SEC"), Commodity Futures Trading Commission ("CFTC") and Treasury Department components, including the Financial Crimes Enforcement Network ("FinCEN"), Foreign Assets Control Office ("OFAC"), Currency Controllership ("OCC") and the Federal Revenue Service (“IRS”). The coordination of the DOJ with state attorney generals and international law enforcement agencies was also highlighted.
The third and final section of the Framework details the challenges the government faces in applying cryptocurrencies. He points out that complex technologies present new issues for law enforcement and describes the facets of cryptocurrency business models (for example, point-to-point exchanges, Bitcoin kiosks and virtual casinos) and evasive measures (for example, "mixing" cryptography or "falling" assets to hide their origin) that often facilitate criminal activity.
The report ends with responsive strategies that the DOJ is actively employing, including ongoing aggressive investigation and prosecution of malicious actors, maintaining relationships with other enforcement agencies and engaging with the private sector to detect and punish bad actors.