The long arm of justice: how far can the DoJ really go in the pursuit of foreign actors?


In early October, the US 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 information on how the laws governing digital finance will soon be implemented on the ground.

One of the core tenets the government asserts in the document is its broad extraterritorial jurisdiction over overseas-based actors who use virtual assets in ways that harm U.S. residents or businesses. The guidelines set an extremely low bar for perpetrators of cross-border crimes before facing prosecution.

Depending on the framework, it may be enough for a crypto transaction “to touch financial, data storage or other computer systems in the United States” to cause enforcement action. Is the rigor of this approach unprecedented in other areas of financial crime law enforcement? What tools does the US government have to deal with criminals operating abroad?

Business as usual

The idea that US law enforcement is justified in prosecuting criminal actors beyond the country’s borders if their activity has adversely affected individuals, businesses, or infrastructure at home is not new. , especially with regard to cybercrimes and financial crimes.

Arlo Devlin-Brown, partner in white collar practice at the law firm Covington & Burling, commented to TBEN:

“The DOJ has always taken the position that US criminal jurisdiction extends to activities with minimal ties to the United States, and US courts have in many cases adopted the DOJ’s broad interpretation of its authority. Cryptocurrency firms that operate outside of the United States but have ties to that country – bank accounts, customers, marketing activities – risk being subject to enforcement action. “

Dan Newcomb, attorney for the Shearman & Sterling law firm, said there was 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 overseas-based actors accountable for crimes. punishable under US law. “

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The authors of the report note that the United States has used anti-money laundering measures against foreign players who trade 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 to crypto either

The US government has on numerous occasions prosecuted foreign individuals and entities implicated in cryptocurrency-related crimes. Gail Fuller, vice president of K2 Intelligence Financial Integrity Network, said she viewed the vast extraterritorial jurisdiction claimed under the DoJ as “broadly compatible with the overall US financial crime compliance regime,” which is designed to protect the integrity of the United States. financial system. Fuller commented:

“We have seen United States enforcement action for sanctions violations and money laundering that have targeted foreign persons or entities in cases where their transactions affected the United States or its banks. In fact, we’ve seen this before in the cryptocurrency context, including with the 2017 indictment of the foreign cryptocurrency exchange BTC-e and its Russian leader, Alexander Vinnik.

According to Fuller, the BTC-e case is particularly interesting because in addition to money laundering charges, the Justice Department accused the exchange of not registering as a money services provider. in the United States, based on the volume of transactions it facilitated.

James Farrell, deputy general counsel for trading solutions provider Apifiny, sees the enforcement guidelines as a reminder to the crypto industry of something that has been well known to mainstream finance for over a decade: if a act of financial misconduct has a substantial effect in the United States, the SEC and the DoJ can go after those responsible. “Stating that just one US server is enough highlights how badly the DOJ needs to assert its competence,” Farrell added.

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For Farrell, the new – and striking – part of the report is the invocation of “protective jurisdiction” – in effect a global criminal power – if the DOJ believes that activity involving cryptography may have national security implications. Farrell said:

“You see this concept enshrined in international treaties relating to hostage-taking, terrorist bombings and terrorist financing. It was shocking to hear that the same basis can be applied to the cryptocurrency industry and how seriously the DOJ takes the potential criminal use of this transformative and developing technology.

Application tools at the service of the DoJ

Proclaiming jurisdiction over people and entities that may be physically located thousands of miles from the coast of the United States is simply a symbolic gesture if there is no real way to hold them accountable. American law enforcement agencies, however, have a considerable arsenal.

A heavy weapon is the degree of control that US financial authorities exercise over the traditional global monetary system. Dan Newcomb of Shearman & Sterling observed at TBEN:

“The main enforcement tool available to the United States is the dominant role the US dollar plays in international trade and the fear that mainstream financial institutions have of being excluded from transactions in US dollars. Most holders of digital assets still need and want to convert these assets at some point into conventional currencies at financial institutions. Preventing a digital player from accessing conventional financial institutions is a powerful tool. “

Devlin-Brown of Covington & Burling said the Justice Department can rely on a number of powerful laws that can be used to prosecute cryptocurrency players based abroad:

“For example, US money laundering law can affect almost any dollar denominated transaction that US authorities can establish to be related 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 US bank as an intermediary. “

Michael Yaeger, a white-collar crime attorney at law firm Carlton Fields and former U.S. deputy attorney for the Eastern District of New York, told TBEN that the DoJ report does not reveal any new instruments to prosecute based actors. abroad. However, Yaeger noted, the collection of past cases presented in the document provides “useful examples of his powers, and perhaps signals which instruments will be used more in the future.”

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One thing that caught Yaeger’s attention is the fact that the report seems to mention confiscation efforts more than previous DoJ reports on cybercrime:

“When confiscation is combined with the seizure of assets before judgment, it is not only a powerful remedy, but also an exceptionally rapid remedy. The United States has entered into numerous cooperative agreements with other countries, including data-sharing agreements with foreign law enforcement and intelligence agencies, and has specific agreements related to confiscation and sharing of financial information. “

There is no doubt that the government is prepared to take advantage of these and other international agreements by adopting its new detailed enforcement strategy. Promoting cooperation with foreign governments and intergovernmental organizations like the FATF is among the focal points of the cryptographic framework.

The language of the DoJ’s framework on extraterritorial jurisdiction and cross-border enforcement may seem harsh to some. Yet, in fact, the government is not articulating any principles radically different from those already raised in some high-profile crypto-related cases. To say that these standards will be applied more systematically only makes sense given the expansion and maturation of the borderless field of digital finance.


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