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How Far Can the DoJ Really Go in Prosecuting Foreign Actors?

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In early October, the U.S. Department of Justice revealed its Cryptocurrency Enforcement Framework, a report laying bare the government’s vision for emerging threats and enforcement strategies in the cryptocurrency space. The document is an important source of insight into how the laws governing digital finance will be soon implemented on the ground.

One of the fundamental principles that the government asserts in the document is its broad extraterritorial jurisdiction over foreign-based actors who use virtual assets in ways that harm U.S. residents or businesses. The guidance sets an extremely low bar for perpetrators of cross-border crime to clear before they face prosecution.

According to the framework, it can be enough for a crypto transaction to “touch financial, data storage, or other computer systems within the United States” to provoke enforcement action. Is the stringency of this approach unprecedented across other domains of financial crimes enforcement? What actual tools does the U.S. government have to counter criminals acting from overseas?

Business as usual

The idea that U.S. law enforcement is justified in prosecuting criminal actors beyond the nation’s borders if their activity has adversely affected individuals, companies, or infrastructure at home is nothing new, especially when it comes to cyber and financial crimes.

Arlo Devlin-Brown, a partner in the white-collar practice of law firm Covington & Burling, commented to Cointelegraph:

“The DOJ has consistently taken the position that U.S. criminal jurisdiction extends to activity with minimal ties to the U.S., and U.S. courts have in many cases embraced the DOJ’s expansive interpretation of its authority. Cryptocurrency businesses that operate outside the U.S. but have any ties to this country — bank accounts, customers, marketing activity — are at risk of enforcement action.”

Dan Newcomb, attorney at law firm Shearman & Sterling, said that there is nothing particularly extraordinary about the extraterritorial approach enshrined in the Cryptocurrency Enforcement Guidelines, as the DoJ has previously used a “wide variety of tools to hold foreign-based actors responsible for crimes punishable under U.S. law.”

The authors of the report note that the U.S. has used anti-money laundering measures against foreign actors dealing in fiat currencies for decades. Asserting similar jurisdiction over those who use digital currencies appears to be a defensible extension of the principle already at work.

Not new for crypto, either

The U.S. government has, on many occasions, gone after foreign persons and entities implicated in cryptocurrency-related crimes. Gail Fuller, a vice president at K2 Intelligence Financial Integrity Network, said that she considers the extensive extraterritorial jurisdiction asserted in the DoJ framework as “broadly consistent with the overall U.S. financial crimes compliance regime,” which is designed to protect the integrity of the U.S. financial system. Fuller commented:

“We’ve seen U.S. enforcement actions for sanctions violations and money laundering that have targeted foreign individuals or entities in cases in which their transactions touched the United States or its banks. In fact, we’ve already seen it in the cryptocurrency context, including with the 2017 indictment of foreign cryptocurrency exchange BTC-e and its Russian executive, Alexander Vinnik.”

In Fuller’s view, the BTC-e case is particularly interesting because on top of money laundering charges, the Department of Justice charged the exchange platform with failing to register as a money services provider in the United States, based on the volume of U.S.-connected transactions it facilitated.

James Farrell, deputy general counsel at trading solutions provider Apifiny, sees the enforcement guidelines as the reminder to the crypto industry about something that has been well-known to the traditional finance for over a decade: If an act of financial misconduct has a substantial effect in the U.S., the SEC and DoJ can and will go after those responsible. “Stating that a single U.S. server is enough just highlights how thin a reed the DOJ needs to assert jurisdiction,” Farrell added.

To Farrell, the novel – and striking – part of the report is invocation of “protective jurisdiction” – effectively worldwide criminal enforcement power – if the DOJ believes that the activity involving crypto may have national security implications. Farrell said:

“You see this concept enshrined in international treaties related to the taking of hostages, terrorist bombings and financing of terrorism. To hear that the same basis may be applied to the cryptocurrency industry was jarring and a marker of how seriously the DOJ is taking potential criminal misuse of this transformative and developing technology.”

Enforcement tools at DoJ’s service

Proclaiming jurisdiction over persons and entities that may be physically located thousands of miles away from U.S. shores is merely a symbolic move if there are no actual means for holding them accountable. U.S. law enforcement, however, commands quite an arsenal.

One heavy weapon is the degree of control that the United States’ financial authorities exercise over the traditional global monetary system. Shearman & Sterling’s Dan Newcomb observed to Cointelegraph:

“The key enforcement tool the U.S. has is the dominant role the U.S. dollar plays in international commerce and the fear conventional financial institutions have of being excluded from U.S. dollar transactions. Most holders of digital assets still need and want to convert those assets at some point into conventional currencies at financial institutions. Barring a digital player from access to conventional financial institutions is a powerful tool.”

Covington & Burling’s Devlin-Brown said that the Justice Department can rely on a number of powerful statutes that can be used to prosecute foreign-based cryptocurrency actors:

“For example, the U.S. money laundering statute can reach almost any dollar-denominated transaction that U.S. authorities can establish as linked to many types of criminal activity. Even a dollar-denominated payment from, say, Germany to Argentina is covered because the transaction would likely involve a U.S. bank as an intermediary.”

Michael Yaeger, a white-collar crime attorney at law firm Carlton Fields and formerly an assistant U.S. attorney for the Eastern District of New York, told Cointelegraph that the DoJ report does not reveal any new instruments for prosecuting foreign-based actors. However, Yaeger noted, the collection of past cases showcased in the document provides “useful examples of its powers, and perhaps signals which instruments will be used more in the future.”

One thing that caught Yaeger’s eye is the fact that the report seems to mention forfeiture efforts more than past DoJ reports on cyber crime:

“When forfeiture is combined with pre-judgment seizure of assets it is not only a powerful remedy, but an unusually fast one. The US has multiple cooperation agreements with other countries including data sharing agreements with foreign law enforcement and intelligence agencies, and has entered specific agreements related to forfeiture and the sharing of financial information.”

There is little doubt that the government is poised to leverage these and other international agreements in enacting its newly itemized enforcement strategy. Promoting cooperation with foreign governments and intergovernmental organizations like the FATF is listed among the crypto framework’s focal points.

The DoJ framework’s language on extraterritorial jurisdiction and cross-border enforcement may sound harsh to some. Yet, in fact the government is not articulating any principles dramatically different from those that are already being invoked in some high-profile crypto-related cases. Stating that these standards will be applied more systematically is only logical considering the expansion and maturation of the borderless realm of digital finance.



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US intelligence is looking at Chinese CBDC as a national security threat

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The U.S. national security apparatus is warning other agencies about China’s coming digital currency. 

On Wednesday, news outlet the Washington Examiner reported on a letter that National Intelligence Director John Ratcliffe had send Securities and Exchange Commission Chairman Jay Clayton earlier in the month.

According to the report, Ratcliffe offered to have staff brief Clayton on the security issues that derive from China’s dominance in crypto mining as well as the country’s progress in digitizing the yuan. Ratcliffe’s letter also apparently pushed Clayton to ensure that U.S. crypto firms remain competitive.

Cointelegraph has reported extensively on the race for a central bank digital currency, or CBDC. Among major economies, China seems to be closest to launch. 

Since Bretton Woods in 1944, the U.S. has enjoyed a privileged status as the issuer of the world’s reserve currency, the U.S. dollar. To this day, almost all international trade is settled in dollars, though that is changing for countries like Russia and China, which are subject to extensive U.S. sanctions.

The dollar’s special status affords the Federal Reserve extra flexibility in printing more dollars without running into hyperinflation, as there is huge demand beyond U.S. shores. It is also this special status that allows U.S. sanctions to be such useful instruments of international influence.

A successful digital yuan could challenge the status of the dollar in international trade. The flip side, however, is that many see a digital yuan as a tool of surveillance for the Chinese Communist Party. While that might reduce demand, that upgraded access to information may be another factor that Ratcliffe is worried about. 



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South Korean government to delay crypto tax rules by three months

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The South Korean National Assembly is planning to delay the implementation of new income tax laws on cryptocurrency gains following appeals from industry bodies.

According to a Nov. 25 report on Korean-language news site DongA, the 20% tax, originally due to be imposed from October 2021, will now not come into force until Jan. 1, 2022.

The delay is intended to give digital currency exchanges time to implement the changes required to incorporate the new tax infrastructure.

As Cointelegraph reported, the new tax structure for cryptocurrencies was announced in July this year and amounts to a 20% tax on any gains over a threshold level of 2.5 million won ($2,260) per year.

The rules were originally planned to come into force on Oct. 1, 2021, which led to complaints from the Korean Blockchain Association.

The KBA claimed that the short window between the existing tax regulations ceasing to apply on Sept. 30, 2021 and the new regime coming into force the very next day would be difficult for exchanges to comply with, initially requesting a delay until Jan. 1, 2023.

The government seems to have acquiesced to some degree, although it only agreed to an extension of three months rather than the 15 months requested.

Prior to the introduction of the new legislation, digital assets have been treated as currencies and so have not attracted taxation.



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Economic justice doesn’t need the blockchain, say advisors to ‘The Squad’

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American progressives, particularly the high-profile group of Congresswomen known as “the Squad,” have been highly vocal on questions of economic equity, the corrosive social impact of Big Tech and the need to reimagine fiscal and monetary policy in the post-2008 and post-COVID-19 political moment.

How do they view blockchain technologies and the subsequent debates that have surrounded the digital dollar, given the potential for some overlap when it comes to certain concerns like financial inclusion, efficient distribution and citizens’ privacy? 

In a recent interview for Forbes, the economic policy advisors to several members of the Squad — Alexia Ocasio-Cortez (D-NY), Rashida Tlaib (D-MI) and Ayanna Pressley (D-MA) — strongly marked out their position as against that of many in the blockchain space.

Chastity Murphy, Rep. Tlaib’s economic policy advisor, engaged with the digital dollar question as it was raised in the recent “Automatic Boost to Communities Act,” which proposed digitizing the currency by 2021as one means to make public stimulus payments more efficient. Murphy said:

“There is a lot of hype around blockchain technology, mostly from people who are thinking about its private sector uses. When it comes to publicly administered digital payments, the more important question is not how to create a distributed ledger managed by multiple actors, but how to create digital cash, which you can hold in your pocket, that doesn’t require a ledger at all. That’s the bigger priority, in our opinion.”

Murphy and other advisors to the Squad have underscored the importance of enabling recurring payments to citizens throughout the COVID-19 public health and economic crisis. 

For progressives like Murphy, engagement with new technologies in the field of finance and public policy centers less on short-circuiting state and other intermediary actors, and more on the biases baked into many so-called “disruptive” or innovative solutions. 

Murphy noted the systemic, damaging impact of automation and algorithmic governance on marginalized communities and people of color. To illustrate this point, she highlighted facial recognition technology and its potential to reinforce racial discrimination in areas such as law enforcement and surveillance. This technology is, for her, “an example of what happens when you separate questions of efficiency and design from questions of exclusion, access, and privacy.”    

Another response from Aya Ibrahim, economic policy advisor for Rep. Pressley, revealed a similar difference in priorities when it comes to private actors that aspire to pitch in their own “solutions” to financial exclusion. She told Forbes:

“Facebook Libra’s selling point initially was that this was going to be a way to bank the unbanked and better serve the underbanked, but that wouldn’t necessarily exist had we provided the services we should had provided.”

In their emphasis on the need for coordinated, state-led and publicly accountable measures to tackle financial marginalization, soaring inequality and secular stagnation, the Squad’s priorities — especially when it comes to fiscal and monetary policy — place them at some distance from the proponents of decentralized, private-sector digital currencies. 

Progressives have been influenced by heterodox economic thinkers such as Stephanie Kelton and other advocates of Modern Monetary Policy, as well as economists that advocate the possibilities of an “entrepreneurial state,” such as Mariana Mazzucato. 

Such thinkers share a critical stance with many crypto advocates when it comes to policies such as quantitive easing and loose monetary policy; yet their criticism is motivated by the regressive impact that these policies have on economic distribution due to the excessive inflation of asset prices. 

Relatedly, progressives’ advocacy of deficit spending and the macroeconomic flexibility that many states, as monetary sovereigns, enjoy, is a world away from the proponents of “hard money” and capped currency supply in the crypto sphere.

Critics of Big Tech across the political spectrum will, nonetheless, no doubt remember Ocasio-Cortez’s stark characterization of Facebook’s proposals for Libra back in 2019:

“In the history of this country, there is a term for being paid in a corporate-controlled currency […] It’s called ‘scrip.”

“The idea that your pay could be controlled by a corporation instead of a sovereign government,” Ocasio-Cortez continued, risks destabilizing what should be a public good.



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