The New DOJ Law Enforcement Crypto Reports (TL;DR)

by Arthur · September 20, 2022

TL;DR? Good news! I’ll read them to you!

On 15 September 2022, the Ministry of Justice released its report “The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets” (66 pages). The first of the nine reports ordered by President Biden’s Executive Order 14067 “Ensuring Responsible Development of Digital Assets” was also released by the DOJ on June 06, 2022, “How To Strengthen International Law Enforcement Cooperation for Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets” (58 pages).

Since then, we have seen the Treasury Department release three reports:

Treasury also provided the White House in July with a “Framework for International Engagement on Digital Assets” described in their press release, but not made public.

Earlier this month, the Department of Commerce released its report:
“Responsible Advancement of US Competitiveness in Digital Assets” (19 pages).

The Office of Science & Technology Policy also released three reports:

In this blog post, we will focus on the two DOJ reports, which we will address in reverse order of release, as it seems necessary to define the role of law enforcement in digital assets before discussing international cooperation. would search in this area.

Table of Contents

The role of law enforcement in digital assets

Despite the Executive Order, it is important to note that the Department of Justice did not need the call from the White House to establish procedures to address cryptocurrency. The department established the Attorney General’s Cyber-Digital Task Force in 2018, which produced their original report, published in October 2020, titled CryptoCurrency Enforcement Framework (83 pages). The original report characterized the illegal use of cryptocurrency into three broad categories of crime:

financial transactions related to the commission of crimes, such as the purchase and sale of drugs or weapons, leasing of servers used in the commission of cybercrime, obtaining funds to support terrorist activity, or ransom, blackmail and extortion.
money laundering and shielding legitimate activity from tax, reporting, sanctions or other legal requirements, including operating unlicensed, unregistered or non-compliant exchanges.
crimes, such as theft, that directly implicate the cryptocurrency market itself, such as stealing cryptocurrency from exchanges or defrauding unsuspecting investors.

The original report listed many case studies involving prosecutions, seizures and arrests in the above scenarios, including SamSam ransomware, Welcome to Video and DarkScandal’s child sexual abuse services, terrorist financing both through direct donation and through the sale of fake medical equipment (PPE under COVID ), The Bitcoin Maven case (Theresa Tetley), BTC-e, Operation DisrupTOR (Wall Street Market), DeepDotWeb, DreamMarket, Lazarus group hacks, HeroCoin ATMs, the Helix mixer and others.

The new report points to something I have also recently mentioned. Bitcoin and other blockchain-based cryptocurrencies are neither the first digital currency, nor the first to facilitate much criminal trade. The report mentions E-Gold (1996) and Liberty Reserve (2006) as “pre-crypto” examples of digital currencies, but might as well have mentioned Webmoney (1998) or PerfectMoney (2007). Many of the points in the new report echo the previous ones, although the cases have been updated, such as Bitfinex, Helix and Hydra Market, estimated at one point to perform 80% of all darknet transactions in the market, and Garantex , the Estonia-based exchange which laundered more than $100 million of the funds associated with darknet markets. The Colonial Pipeline ransomware and the use by accused GRU agents of bitcoin, the theft of $600 million by Lazarus Group hackers in March 2022 are all used to update the original report.

Two important additions are the section on the growth of decentralized finance (DeFi) and non-fungible tokens (NFT). This area discusses the discussion of “Decentralized Autonomous Organizations” as opposed to a traditional corporate structure, and insider trading, money laundering and tax evasion aspects of NFT trading. (Examples of Nathaniel Chastain of OpenSea and Ishan Wahi of Coinbase are provided as inside examples.)

Part II of the report discusses DOJ efforts such as the National Crypto Enforcement Team (NCET) and its predecessors, such as the Money Laundering and Asset Recovery Section Digital Currency Initiative, and the International Virtual Currency Initiative. A few interesting statistics from the FBI, including that as of July 2022, the FBI had conducted 1,100 separate investigations across 100 investigative program categories involving a digital asset nexus. Since their first seizure of digital assets in 2014, the FBI has seized $427 million in virtual assets (as valued at the time of the seizure.) In February 2022, the FBI created the Virtual Assets Unit. The Department of Justice has also established a Digital Asset Coordinators Network composed of designated prosecutors in US attorneys’ offices across the country who work closely with CCIPS, MLARS, and NCET. The program is based on the successful CHIP Network (Computer Hacking and Intellectual Property) and the National Security Cyber Specialist (NSCS) Network which each designate prosecutors in each field office to be specially trained and equipped to handle the relevant case types for their office.

The DEA’s Cyber Support Section is described as performing cryptocurrency analysis related to the use of cryptocurrency to facilitate drug trafficking, while the US Marshals Service is the group that manages and liquidates seized crypto assets. HSI has been a key player in many crypto cases, with at least 500 active investigations, notably via their Financial Crimes Unit, Cyber Crimes Center and Asset Forfeiture Unit. The US Secret Service is also involved, with 302 cases involving digital assets and at least 535 seizures of digital assets worth more than $113 million at the time of seizure. The US Secret Service is also a top state and local law enforcement trainer via the National Computer Forensics Institute (NCFI) headquartered here in Hoover, Alabama! They also run a Digital Assets Awareness Hub to educate the public about crypto risk.

Regulatory agencies also play their role, with FinCEN working to enforce Bank Secrecy Act (BSA) guidelines and regulations related to anti-money laundering and counter-financing of terrorism (AML/CFT) requirements. Treasury manages the OFAC office, which includes sanctions crackdowns and government-sponsored cryptohackers. The SEC regulates crypto scams structured as “investment contracts, such as BlockFi Lending LLC or the DeFi Money Market. The Commodity Futures Trading Commission (CFTC) regulates the trading of commodities in interstate commerce. They have filed 50+ enforcement actions against organizations such as Coinbase, Payward Ventures (Kraken ), Blockratize (Polymarket). BitMEX is a cryptocurrency derivatives exchange targeted for CFTC enforcement after $209 million in darknet market transactions were paid through BitMEX, which paid a $100 million fine, with three co-founders pleading guilty to criminal charges and paid a $10 million fine.

A recent organization of note is IVAN, the Illicit Virtual Asset Notification platform, which is being built by FinCEN and the FBI’s National Cyber Investigative Joint Task Force. The goal of IVAN is to be a public-private information exchange to allow industry to collaborate on the timely detection and disruption of the use of virtual assets to promote illegal activity.

Inquiries about legislation

The justice report makes several requests for additional legislation, in five categories:

extend the subpoena disclosure ban (currently applicable to financial institutions) to VASPs (Virtual Asset Service Providers), strengthen laws against operating an unlicensed money transmission business, and extend the statute of limitations from 5 to 10 years for certain crimes.
support for initiatives that will help investigators gather evidence
strengthening the sentencing guidelines for certain BSA violations
extend the BSA registration rules to VASPs
ensure that law enforcement has the resources to conduct and staff sophisticated digital asset-related investigations.

International considerations

One of the main observations of the report on international law enforcement cooperation is the standard complaint that mutual legal assistance treaties are too slow, and that faster methods of international law enforcement cooperation, such as the “24-7 network” often do not have a standard way to share requests regarding the Virtual Asset Service Providers. (VASPs).

Subsequently, while the pro-Western nations of the world have largely standardized cybercrime laws under the Budapest Convention on Cybercrime, the way the world’s nations define, regulate and enforce actions against VASPs is varied and inconsistent. Under the concept of dual criminality, where one nation can only ask another to enforce laws that are the same in both countries, much of crypto-crime enforcement lacks such standards.

Although cybercrime laws may not have caught up, the international body that deals with Anti-Money Laundering, the FATF or Financial Action Task Force, are clear thought leaders on the guidelines for virtual assets. (We wrote about the FATF in 2019, see: Money Laundering and Counter-Terrorism Financing: What is the FATF? ) Unfortunately, as of July 2021, only 35 participating nations had implemented the FATF proposals regarding virtual assets and VASPs in their national promises.

My favorite part of the “Strengthening International Law Enforcement” report is Appendix B: “Examples of Successful Cross-Border Cooperation on Digital Asset Investigations.”

Liberty Reserve
BTC-e

Helix

The Silk Road

Operation Bayonet (AlphaBay and Hansa)

Dream market

Wall Street Market

DeepDotWeb

Welcome to video

Operation DisruptOR

Hydra market

Twitter hack

Sodinokibi/REvil Ransomware

NetWalker Ransomware

BitConnect

For each example above, details are shared about which international law enforcement agencies worked with which US agencies to reach a successful resolution. Inspirational reading!

*** This is a Security Bloggers Network syndicated blog from CyberCrime & Doing Time written by Gary Warner. Read the original post at: