What the FBI crypto task force implies for the digital asset industry

An FBI crypto task force law enforcement operation is being consolidated to convey a clear message to the digital asset industry: it is time to comply.
What the FBI crypto task force implies for the digital asset industry | Coinscreed

At the Munich Cyber Security Conference on Feb. 17, US Deputy Attorney General Lisa Monaco announced the launch of a new task force under the Federal Bureau of Investigation “focused to cryptocurrency” (FBI).

This comes four months after the Justice Department’s National Cryptocurrency Enforcement Team (NCET) was established, signaling yet another big step forward in the US government’s fight against illegal cryptocurrency exploitation.

What will the task force look like?

The Virtual Asset Exploitation Unit is the name of the new task force disclosed by Monaco (VAXU).

It will bring together FBI professionals with crypto knowledge from multiple sections to conduct blockchain-based investigations that could lead to the seizure of virtual assets.

Although there are currently few information about the VAXU’s operation, Monaco made it clear in her statement that the fight against cyber ransomware is the top priority.

“Ransomware and digital extortion, like many other crimes fueled by cryptocurrency, only work if the bad guys get paid, which means we have to bust their business model […] The currency might be virtual, but the message to companies is concrete: if you report to us, we can follow the money and not only help you but hopefully prevent the next victim.”

The VAXU also intends to collaborate with foreign task forces in order to track down global criminal networks that operate in the cryptocurrency space.

Relationship with NCET

Despite its primary association with the FBI, VAXU will be a member of the National Cryptocurrency Enforcement Team (NCET), which will begin operations in October 2021 to combat money laundering and cybercrime.

The NCET’s aim is to “address complex investigations and prosecutions of illegal misuses of cryptocurrencies, including crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure operators,” according to the official statement.

The NCET’s objective includes investigating and prosecuting cryptocurrency cases, identifying areas for additional investigative and prosecutorial focus, engaging with industry stakeholders, and creating partnerships with crypto-adjacent departments and officers across the law enforcement system.

In essence, the NCET has a mandate to engage in practically any relevant case, regardless of who is conducting the investigation.

With the inclusion of the FBI-backed VAXU, the unit’s capabilities will be expanded even further, solidifying its position as one of the most important forces in the crypto law enforcement game.

The new look of NCET

Eun Young Choi, a former senior attorney to the Deputy Attorney General, was named to oversee the NCET on February 17.

Choi worked for the United States Attorney’s Office for the Southern District of New York for almost nine years as the cybercrime coordinator, where she dealt with cryptocurrency while investigating money laundering operations and online fraud.

Choi, for example, was the lead prosecutor in the case of Coin.mx, an unregulated cryptocurrency exchange whose operator, Anthony Murgio, was sentenced to 66 months in prison.

She also successfully argued the case against Ross Ulbricht, the Silk Road’s founder, who has been serving back-to-back life sentences since 2015.

Sujit Raman, a partner at the Sidley Austin law firm’s privacy and cybersecurity department, told Coinscreed that the current US law enforcement stance is consistent.

The Department of Justice declared publicly in 2018 that “cybercriminals are increasingly using virtual currencies to advance their activities and conceal their assets,” and that it would “continue evaluating the emerging threats posed by rapidly developing cryptocurrencies that malicious actors frequently use.”

The Trump Administration published a detailed crypto enforcement policy in October 2020 after a thorough internal assessment and research. Raman made a point.

“The launching of the NCET and of the FBI’s Virtual Asset Exploitation Unit are, therefore, significant and important expansions upon lines of thinking that senior officials have been pursuing for some time, across administrations.”

Synergies in the executive suite

According to Michael Bahar, chair of global law firm Eversheds Sutherland’s Cybersecurity practice, the potential cooperation between the DOJ and other regulatory authorities will have a synergetic effect. Bahar added his two cents.

“The growing experience and expertise within the Department of Justice will also spread to regulators like the Securities and Exchange Commission and financial regulators. Indeed, we should now expect the Department of Justice to further enhance its engagement with state and local law enforcement and regulatory bodies in the United States and globally.”

As Raman explains, the DOJ already has relationships with agencies like the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Internal Revenue Service (IRS), and while there are limits to how much criminal enforcers can collaborate with civil regulators, “those partnerships will only continue to deepen.”

The DOJ and its task teams, however, will not, in Raman’s judgment, drive the real rulemaking around digital assets.

“DOJ is a law enforcement agency. It is not likely to play a very significant role in crafting a legislative framework to govern the crypto industry writ large.”

These changes, according to both experts, represent no threat to the legitimate crypto sector.

Capable law enforcement, on the other hand, can assist in moving it forward toward becoming a more transparent and secure investment environment.The DOJ’s activity sends a clear message: it’s time to comply.

“If you engage in cryptocurrency, you must demonstrate that you can do so in a compliant manner, calibrating your compliance procedures to the specific risks that cryptocurrencies and the underlying blockchain technology present,” added Bahar.

While the fast-growing crypto economy is here to stay, law enforcement is adapting its techniques in response, as seen by the continued centralization and coordination of federal law enforcement’s investigative and prosecutorial operations in the virtual currency area.