The Department of Justice (DOJ) has decided to sing a different song when it comes to crypto crime. Is that a sign of a full-blown retreat from the digital asset space, or a move to more high-level, strategic thinking? FakeBollinger.com is here to cut through all the fluff and hype and explain what the new DOJ guidance really means.

Understanding the DOJ's New Crypto Guidance

The core of this shift involves:

  • Prioritizing individual prosecutions: The DOJ will now focus on going after individuals who are directly responsible for causing financial harm to investors or using crypto for criminal activities.
  • Deference to regulatory agencies: The DOJ will avoid charging regulatory violations (like those under the Securities Act) if other charges are available, deferring to agencies like the SEC or CFTC.
  • Focus on asset forfeiture and victim compensation: The DOJ will emphasize seizing illicit crypto assets and using those funds to compensate victims of crypto-related crimes.
  • Closure of the National Cryptocurrency Enforcement Team: The DOJ has shut down its National Cryptocurrency Enforcement Team, which was established in 2022 to address the illicit use of cryptocurrencies.

This new direction means the DOJ will consider various factors before pursuing a case, such as whether a digital asset should be classified as a security or commodity. They will prove to be less inclined to push litigating this issue if they can help it and more likely to consider whether alternative criminal charges exist.

What's Driving This Change?

To be sure, a few developments have no doubt led to this change in approach by the DOJ. One possibility is a recalibration of resources. Crypto investigations are complex and resource-intensive. Focusing on clear-cut fraud cases involving individual bad actors may be a more efficient use of the DOJ's time and money. Another likely factor is the increasing pressure to provide clear guidelines and frameworks for digital assets outside of the punitive criminal justice framework. This shift aims to allow regulators to establish clear rules for the crypto industry, rather than relying on enforcement actions to define the boundaries.

Potential Impacts and Implications

The DOJ’s about face might mean big things for the crypto industry, crypto investors, and the future of crypto regulation.

Impact on Investor Protection

These new policies would decrease regulatory oversight. This potential reversal would increase the danger that investors will face in the quickly changing cryptocurrency market. Rolling back federal regulations would likely ignite a looming explosion of consumer protection cases. To protect these hard-fought protections, state regulators should act quickly to enforce these protections. The SEC’s message is clear: it is concentrating its enforcement efforts in the digital asset space exclusively on fraud cases. As such, it has deliberately closed or otherwise ended matters on a recurring basis involving non-fraud regulatory infractions.

Anti-Money Laundering Efforts

Nowhere is this more evident than in the DOJ’s focus on individual prosecutions and the tool of asset forfeiture. This coordinated strategy identifies the disruption of illicit finance through crypto as its first priority. This more targeted approach would be a refreshing change from the shotgun enforcement by SEC Chair Gensler that indiscriminately targets all crypto companies.

Consistency with Past Enforcement Actions

The DOJ will work to prioritize investigations and enforcement actions against those who cause financial harm to investors and consumers. They will further focus on people who abuse digital assets to facilitate crime. Now, the DOJ will decline to charge regulatory violations in matters involving digital assets. They will proceed only if there is evidence that the defendant was aware of the licensing or registration requirement and willfully violated it.

Potential Challenges

State and local authorities, such as the Manhattan DA's Office, may use existing tools like the Martin Act to pursue fraud cases and protect investors in the cryptocurrency market.

  • Increased regulatory gaps: A decrease in federal enforcement could create opportunities for fraud and other illicit activities to flourish.
  • Shift in enforcement approach: The DOJ's new policy targets "regulation by prosecution," which may lead to a decrease in enforcement actions against cryptocurrency companies, potentially creating an environment conducive to fraud.
  • Limited SEC enforcement: The SEC has limited its enforcement efforts in the digital asset space to fraud cases, systematically closing or dismissing ongoing enforcement matters based on non-fraud regulatory violations.

For crypto businesses, the DOJ’s new focus could present both greater opportunities and new challenges. On one hand, a simpler and more predictable regulatory environment might free up a lot more innovation and investment. Businesses need to be increasingly vigilant when it comes to compliance and risk mitigation. The DOJ will be very aggressive toward and prosecute with full force those who engage in fraud or other criminal activity.

What This Means for Crypto Businesses

Unlike past administrations, this new guidance provides clarity about the types of cases that will be pursued as well as which regulatory violations will be charged. This change makes the regulatory environment much more predictable for crypto businesses. DOJ’s new guidance marks another step toward prioritizing asset forfeiture in crypto cases. It foreshadows the use of the remission process to reimburse victims, forming a more victim-focused enforcement action process.

Taken together, the DOJ’s actions send a powerful message. As crypto criminals become increasingly sophisticated, the agency is taking a more targeted and strategic approach to fighting crypto crime. Whether this is a real change in approach, or simply reallocation of investment, remains to be seen. It goes, all of us in the crypto space should be paying close attention to this development.

The DOJ's move is a clear signal that the agency is taking a more targeted and strategic approach to crypto crime. Whether this represents a genuine shift in strategy or a recalibration of resources remains to be seen, but it's a development that everyone in the crypto space needs to watch closely.