{"id":214076,"date":"2025-04-30T04:15:10","date_gmt":"2025-04-30T04:15:10","guid":{"rendered":"https:\/\/peraltafinancing.com\/activist\/unpacking-the-dojs-crypto-enforcement-memo\/"},"modified":"2025-04-30T04:15:10","modified_gmt":"2025-04-30T04:15:10","slug":"unpacking-the-dojs-crypto-enforcement-memo","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=214076","title":{"rendered":"Unpacking the DOJ’s Crypto Enforcement Memo"},"content":{"rendered":" \r\n
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Legal experts say it may not significantly alter the types of cases the DOJ brings.<\/em><\/strong><\/p>\n\n\n\n

Earlier this month, the Department of Justice disbanded its National Cryptocurrency Enforcement Team and said it would no longer pursue what Deputy Attorney General Todd Blanche described as \u201cregulation by prosecution.\u201d<\/p>\n\n\n\n

You\u2019re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government.\u00a0Click here<\/a>\u00a0to sign up for future editions.<\/em><\/p>

<\/a><\/div><\/div>\n\n\n\n

\u2018Regulation by prosecution\u2019<\/h4>\n\n\n\n

The narrative<\/h4>\n\n\n\n

The U.S. Department of Justice \u201cwill no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets\u201d in lieu of regulatory agencies putting together their own frameworks for overseeing the sector,\u00a0a 4-page memo<\/a>\u00a0signed by Deputy Attorney General Todd Blanche on April 7 said. In other words, the DOJ will no longer pursue \u201cregulation by prosecution,\u201d the memo said.<\/p>\n\n\n\n

Why it matters<\/h4>\n\n\n\n

The DOJ\u2019s memo raised concerns that it may mean criminal activities in the crypto sector would not be prosecuted, or at least prosecuted as heavily as it was under the past several years \u2014 both by disbanding the National Cryptocurrency Enforcement Team (NCET) and by shifting the entity\u2019s priorities.<\/p>\n\n\n\n

Breaking it down<\/h4>\n\n\n\n

At a practical level, the memo itself is internal guidance but may not be a binding document. Multiple attorneys told CoinDesk they interpreted the guidance to indicate that the DOJ would still bring fraud or other criminal cases involving crypto, but would try to avoid any cases where the DOJ itself had to determine if a digital asset was a security or a commodity.<\/p>\n\n\n\n

\u201cFraud is still fraud,\u201d said Josh Naftalis, a partner at Pallas Partners LLP and a former prosecutor with the U.S. Attorney\u2019s office for the Southern District of New York. \u201cThis memo does not seem to say the DOJ is not going to prosecute fraud in the crypto space.\u201d<\/p>\n\n\n\n

Still, the memo raised alarms for prominent Democrats who questioned whether the DOJ was suggesting it would let criminal conduct occur. Senators Elizabeth Warren, Mazie Hirono, Richard Durbin, Sheldon Whitehouse, Christopher Coons and Richard Blumenthal\u00a0wrote a letter<\/a>\u00a0to Blanche, saying his \u201cdecision to give a free pass to cryptocurrency money launderers\u201d and shut down the NCET were \u201cgrave mistakes that will support sanctions evasion, drug trafficking, scams and child sexual exploitation.\u201d<\/p>\n\n\n\n

\u201cSpecifically, the Department will no longer target virtual currency exchanges, mixing and tumbling services and offline wallets for the acts of their end users or unwitting violations of regulations \u2014 except to the extent the investigation is consistent with the priorities articulated in the following paragraphs,\u201d the DOJ memo said, a passage the Senators\u2019 letter referenced.<\/p>\n\n\n\n

New York Attorney General Letitia James wrote\u00a0an open letter<\/a>\u00a0to Senate leaders in the same week asking them to advance legislation to address cryptocurrency risks. She did not specifically reference Blanche\u2019s memo but detailed possible ways to better police the sector through legislation.<\/p>\n\n\n\n

Katherine Reilly, a partner at Pryor Cashman and a former prosecutor with the U.S. Attorney\u2019s Office for the Southern District of New York, told CoinDesk that most of the major crypto cases brought by the DOJ in recent years would not have been affected had this guidance been in effect.<\/p>\n\n\n\n

The BitMEX case in 2020, when the DOJ and Commodity Futures Trading Commission\u00a0brought unregistered trading and other charges<\/a>\u00a0against the platform, is \u201cprobably closest to the line\u201d of being a case that may not have been brought under this guidance, she said.<\/p>\n\n\n\n

Trump pardoned BitMEX<\/a>, its founders and a senior employee in late March, barely two weeks before the DOJ memo was shared.<\/p>\n\n\n\n

\u201cI think that it\u2019s clear that the Justice Department wants to limit the DOJ\u2019s role in regulating the crypto industry \u2026 looking beyond its role in other crimes, fraud, laundering proceeds from narcotics trafficking, things like that, and sort of take a step back from the role of trying to bring order and fairness to the crypto industry as a whole,\u201d Reilly said.<\/p>\n\n\n\n

That\u2019s \u201cprobably the intent behind the BitMEX pardons too,\u201d she said.<\/p>\n\n\n\n

Naftalis said the DOJ will continue to pursue drug, terrorism or other illicit financing charges even under the memo.<\/p>\n\n\n\n

\u201cI think that the headline for the industry is to the extent that there are legal uses of crypto, they\u2019re not going to set the guard rail by criminal enforcement,\u201d he said. \u201cThat\u2019s for Congress.\u201d<\/p>\n\n\n\n

One section of the memo tells prosecutors not to charge Bank Secrecy Act violations, unregistered securities offering violations, unregistered broker-dealer violations or other Commodity Exchange Act registration violations \u201cunless there is evidence that the defendant knew of the licensing or registration requirement at issue and violated such a requirement willfully.\u201d<\/p>\n\n\n\n

Carla Reyes, an Associate Professor of Law at SMU Dedman School of Law, told CoinDesk that this may be referencing recent cases where developers build tools under the impression that they were not committing unlicensed money transmitting activities under existing guidance but may get charged anyway.<\/p>\n\n\n\n

\u201cMost criminal statutes require some level of knowledge to define your intention, and knowledge that you\u2019re committing a crime when you do it,\u201d she said. \u201cThe further away you get from that, the lesser the charge, but the more willful [and] intentional it is, the higher the charge.\u201d<\/p>\n\n\n\n

What the memo seems to want to explicitly move away from is any suggestion that federal prosecutors would interpret how securities or commodities laws might apply to digital assets.<\/p>\n\n\n\n

\u201cProsecutors should not charge violations of the Securities Act of 1933, the Securities Exchange Act of 1934, the Commodity Exchange Act, or the regulations promulgated pursuant to these Acts, in cases where (a) the charge would require the Justice Department to litigate whether a digital asset is a \u2018security\u2019 or \u2018commodity,\u2019 and (b) there is an adequate alternative criminal charge available, such as mail or wire fraud,\u201d the memo said.<\/p>\n\n\n\n

A popular critique leveled against former SEC Chair Gary Gensler by the crypto industry was that he was \u201cregulating by enforcement,\u201d rather than focusing on developing guidance for the industry to know what was or wasn\u2019t acceptable. Blanche seems to be referring to a similar critique in the memo, Naftalis said, in that one-off enforcement decisions by the SEC or DOJ should not define the guardrails for the industry.<\/p>\n\n\n\n

Steve Segal, a shareholder at Buchalter, said that some of the DOJ\u2019s past cases would charge trading venues for failing to police their own customers. The memo now seems to suggest that if a crypto exchange\u2019s executives were running a clean platform, and customers were laundering funds derived from criminal activities, the executives would not be charged. This is in contrast with, for example, FTX, where the executives were charged and convicted of (or pled guilty to) fraud charges.<\/p>\n\n\n\n

\u201cOf course, a lot of the big crypto cases we\u2019ve seen over the last few years are sort of pure investor fraud, things like FTX. And one of the more interesting things about this memo is it talks about crypto investors and really prioritizing cases where crypto investors are being victimized,\u201d Reilly said. \u201cAnd so I don\u2019t think we should conclude that this memo means we\u2019re going to see a lot fewer cases in the crypto space, or that crypto companies can sort of breathe a sigh of relief that the DOJ is out of the picture for a few years.\u201d<\/p>\n\n\n\n

The DOJ\u2019s future cases may appear a bit different in terms of the specific allegations made, but \u201cit\u2019s much too soon to say that everybody can assume the DOJ is out of the crypto business,\u201d she said.<\/p>\n\n\n\n

Many of the attorneys speaking to CoinDesk agreed that the memo itself did not clarify all of the different issues that may come up with a criminal case, nor was it an end-all\/be-all document.<\/p>\n\n\n\n

The memo announced prosecutorial discretion but it isn\u2019t itself a law, Reyes said, adding that it may guide internal decision-making about which cases to pursue the most heavily, as well as the strategies that guide those prosecutions.<\/p>\n\n\n\n

A lot of details about how this memo ties together with Trump\u2019s executive order on the strategic bitcoin reserve still need to be spelled out, Segal said. Sections on victim compensation and how seized funds should be handled in the memo do not explain how the DOJ might handle situations where seized funds are turned over to bankruptcy estates, such as what happened with FTX or other similar scenarios.<\/p>\n\n\n\n

\u201cI think we\u2019ll really have to see how it plays out, because this guidance, I do think, leaves prosecutors a lot of room to bring cases even of these kinds of violations that are being cast as more regulatory,\u201d Reilly said. \u201cSo even if that\u2019s the intent, I think the devil is in the details on what cases we see going forward.\u201d<\/p>\n\n\n\n

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Monday<\/p>\n\n\n\n