In recent months, the United States government has been ramping up its efforts to crack down on criminals using cryptocurrencies to perpetrate financial crimes. The arrests of Anatoly Legkodymov, founder of Bitzlato, and former FTX CEO Samuel Bankman-Fried, are just two examples of these efforts.
According to Oberheiden PC attorney Alina Veneziano, federal government agencies are increasing their investigative efforts toward crypto crime and will utilize all the tools at their disposal – subpoenas, summons, and intergovernmental sharing of information. For example, the SEC increased the size of its Crypto Assets and Cyber Unit in 2021 to investigate more fraudulent crypto asset schemes and better protect investors in the crypto markets.
Former federal prosecutor Grant Fondo believes that the increase in activity is the result of the current bear market, widespread acceptance of cryptocurrency, and the government’s obligatory focus on crime. In 2021, the DOJ created the National Cryptocurrency Enforcement Team (NCET) to handle the investigation and prosecution of criminal misuse of cryptocurrency. NCET would combine the expertise of the agency’s Money Laundering and Asset Recovery Section and the Computer Crime and Intellectual Property Section. In 2022, the DOJ also created the Digital Asset Coordinator (DAC) Network, which would assign designated federal prosecutors from U.S. attorney’s offices around the country to the DAC Network, and each office’s DAC will be the digital asset subject matter expert and the first investigative source of information.
The DOJ believes that cryptocurrency is the preferred payment method for ransomware and other digital extortion activities. In September, the agency reported that cryptocurrency is used to raise funds for terrorist organizations and other nation state threat actors. The DOJ stated that its largest cryptocurrency seizure disrupted the funding campaigns of ISIS and other terrorist groups. Veneziano believes that these crimes aren’t new, but they’ve just adapted to cryptocurrency. For example, we’re likely not looking at the creation of brand new crimes but are instead more likely to see the crypto element incorporated into other offenses, such as crypto tax evasion, crypto theft, unregistered crypto offerings, crypto money laundering, etc.
In a statement on Dec. 14, 2022, U.S. Attorney for the Southern District of New York Damian Williams “announced charges in two separate indictments against the founders and promoters of two cryptocurrency Ponzi schemes known as IcomTech and Forcount,” both with conspiracy to commit wire fraud. According to the DOJ, victims purchased IcomTech and Forcount investment products using cryptocurrency, cash, checks, and wire transfers. They were then given access to an online portal where they could monitor dubious returns. “While Victims saw ‘profits’ accumulate on the schemes’ respective online portals, most victims were unable to withdraw any of these so-called profits and ultimately lost their entire investments.” All the while, IcomTech and Fourcount’s promoters skimmed hundreds of thousands of the victims’ funds, withdrew it as cash and spent the loot on promos for the Ponzi scheme, luxury goods, and real estate.
Collaboration between government agencies on crimes in the crypto sphere should be expected, and Wally Adeymo, Deputy Secretary of the Treasury, thanked the DOJ “for being such great partners” in the Bitzlato-case. Additional agencies, including FinCEN, the FBI, ICE, the Secret Service, and DHS, have all participated in cryptocurrency investigations.
As cryptocurrency continues to grow in popularity, it’s crucial for the government to implement regulatory safeguards to prevent illicit activity. Ransomware attacks, funding campaigns for terrorist organizations, Ponzi schemes, and other financial crimes using cryptocurrency can happen quickly, leaving law enforcement racing to keep up. By collaborating across departments and utilizing all available tools, the government can crack down on crypto criminals, and protect both investors and the public at large.