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US DoJ Goes After Rogue Exchanges As Crypto Crimes Grow ‘Significantly’

Eun Young Choi, the first director of the National Cryptocurrency Enforcement Team (NCET), has told reporters that crypto-related crimes have risen significantly in recent years. Through her team, the United States Department of Justice (DoJ) now plans to go after rogue exchanges that knowingly allow criminals to launder money.

NCET Wants Exchanges To Be Compliant

The Financial Times reports that Choi is concerned about the spike in crypto-enabled crimes and is setting their eyes on cryptocurrency exchanges, mixers, and tumblers. 

Open-source token mixers such as Tornado Cash, a protocol that United States authorities have already sanctioned, are widely used by criminals to launder stolen assets. Because they make it hard for authorities to trace transactions on public ledgers, hackers are actively exploiting these tools to obfuscate transactions and evade justice.

NCET and the DoJ will go after crypto companies that, though compliant with existing laws on paper, have allowed themselves to be used by criminals; a development that Choi says is “problematic”.

By targeting these rogue agents, the director said they would send a “deterrent message” and hope their involvement would have a multiplier effect. 

Specifically, NCET seems to have a problem with cryptocurrency exchanges that skirt anti-money laundering rules and those which don’t comply with know-your-customer (KYC) laws. The enforcement team says going after them could make them invest more in risk-mitigation procedures and comply more with existing rules.

Binance, the world’s largest cryptocurrency exchange, is reportedly one of the exchanges on the radar of the DoJ. Unconfirmed reports suggest that the DoJ, among other agencies, including the United States Securities and Exchange Commission (SEC), is investigating the Changpeng Zhao-led exchange for violating established rules.

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US Government’s Position On Crypto

President Joe Biden’s administration has taken a relatively tough stance on cryptocurrencies. Regulators in the United States have been in recent months going after companies they deem to be non-compliant, especially after the collapse of FTX, a cryptocurrency exchange.

The position adopted in the United States, especially on regulation and enforcement, could be one of the strictest in the world. Several officials and policymakers in the country strongly believe cryptocurrencies can pose a significant risk to the stability of their financial infrastructure, which could also impact national security.

In that regard, steps have been taken to increase oversight and, most importantly, double down on regulation of the cryptocurrency scene.

NCET, of which Choi is the first director, was created in October 2021. A department under the DoJ, the team goes after entities, including individuals that misuse digital assets, flout established anti-money laundering rules, or engage in ransomware attacks using cryptocurrencies. 

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The FBI Will Launch A Ransomware-Focused Unit To Monitor Cryptocurrencies

Both the FBI and the U.S. Justice Department are making moves in the crypto space. Recent high-profile victories offered the necessary incentive for both organizations to take action. Reuters reports that the Justice Department hired “a seasoned computer crimes prosecutor” as their new crypto zar. For their part, the “FBI is launching a unit for blockchain analysis and virtual asset seizure.”

Both moves are a clear indication of the U.S.’s newfound attitude towards cryptocurrencies. 

The Justice Department’s New Crypto Czar

The U.S. Justice Department’s National Cryptocurrency Enforcement Team (NCET) has a new leader. The chosen one is Ms. Eun Young Choi, “a prosecutor who led the case against a Russian hacker who helped steal information about more than 80 million JPMorgan & Chase Co customers.”

In the Justice Department’s press release, they quote Director Choi:

 “The NCET will play a pivotal role in ensuring that as the technology surrounding digital assets grows and evolves, the department in turn accelerates and expands its efforts to combat their illicit abuse by criminals of all kinds. I am excited to lead the NCET’s incredible and talented team of attorneys, and to get to work on this important priority for the department.” 

At Young Choi’s announcement, Reuter quotes Deputy Attorney General Lisa Monaco warning criminals of their organization’s aims:

“We are issuing a clear warning to criminals who use cryptocurrency to fuel their schemes. We also call on all companies dealing with cryptocurrency – we need you to root out cryptocurrency abuses. To those who do not, we will hold you accountable where we can.”

Their organization is going to move fast and break things, according to Monaco:

“Moving forward, prosecutors, agents, and analysts will now assess – at each stage of a cyber investigation – whether to use disruptive actions against cyber threats, even if they might otherwise tip the cybercriminals off and jeopardize the potential for charges and apprehension.”

BTC price chart for 02/18/2022 on Easymarkets | Source: BTC/USD on TradingView.com
Why Is The FBI Creating On A Crypto-Focused Unit Right Now?

Remember those high-profile victories we mentioned? Well, of course, the recent capture of the alleged Bitfinex hackers is one of those. “The creation of the FBI’s “virtual asset exploitation” unit comes after the Justice Department’s largest-ever financial seizure earlier this month,” said Reuters. When NewsBTC covered the story, to summarize the situation, we used the unanswered questions:

“Could this tech entrepreneur and this writer/ rapper have hacked a cryptocurrency exchange? Or are they just the money launderers for a bigger operation? And, did they really save the private keys to billions in BTC on the cloud? Or were they set up? Is law enforcement playing tricks on the public or are they the heroes of the day?” 

The other high-profile victory is the Colonial Pipeline hack. According to Reuters, the FBI is “ratcheting up their scrutiny of the crypto industry in the wake of a series of high-profile cyberattacks last year on the largest U.S. fuel pipeline network and the world’s largest beef supplier.” When law enforcement recovered millions in BTC from the Colonial Pipeline ransomware payout, NewsBTC summarized the situation like this:

“According to the report, Colonial Pipeline controls around 45% of the fuel for the U.S. East Coast. Its CEO Joseph Blount was forced to pay the ransom enforced by the hacker on a control room’s main computer. Estimated in around $4.4 million paid in 63.7 Bitcoin.

The operation was carried out by a special ransomware task force created by the U.S. Federal Government. This type of attack has become regular. There is a growing concern in the public and the authorities.”

That growing concern ended up creating a new crypto czar and a new FBI unit focused on the problem.

Conclusions And Market Considerations

There’s a growing concern about how will these high-profile seizes affect the market. Will law enforcement just give the BTC to Bitfinex? Or, will they auction it instead? Will the U.S. absorb it as Bitcoin in their balance sheet? How will law enforcement play it? And what will happen if those coins reach the market in any of those ways?

The Bitfinex hack could become a landmark case and point in the direction that the government will go with all of this. Don’t worry, for you, NewsBTC will keep an eye out for every little development.

Featured Image by Marija Zaric on Unsplash | Charts by TradingView