Policy Alert: Department of Justice Disbands Crypto Crime Enforcement Team

Action: On April 7, Deputy Attorney General Todd Blanche issued a memorandum “Ending Regulation By Prosecution,” signaling a significant shift in the Department of Justice’s (DOJ) approach to digital assets and cryptocurrency crime enforcement. The memo states that DOJ will cease targeting virtual currency exchanges and other crypto service providers for the actions of their end users or for “unwitting” violations of regulations except in cases involving defrauding customers and investors or unlawful conduct by cartels, terrorists, or similar organizations. The memo specifically instructs prosecutors not to charge regulatory violations related to operating as an unlicensed money transmitter, violations of the Bank Secrecy Act, offering unregistered securities, and other violations unless there is evidence that the violations were committed knowingly (a relatively high standard in criminal law). It also directs prosecutors not to pursue cases that would litigate whether a digital asset is a security (subject to the jurisdiction of the SEC) or a commodity (subject to the CFTC). Finally, it directs the Market Integrity and Major Frauds Unit to cease cryptocurrency enforcement to focus on other priorities, such as immigration and procurement frauds, and disbands the National Cryptocurrency Enforcement Team, which had been created by the Biden Administration to pursue cases involving the use of digital assets.

Key Insights

• The Administration has made promoting the crypto industry a priority since entering office, aiming to “make America the crypto capital of the world.” The President and Administration officials have communicated their view that previous policy has unfairly targeted the crypto industry and slowed its development.
• The President has previously issued Executive Orders creating a “Strategic Bitcoin Reserve” and establishing a working group to recommend federal policy changes to support digital assets. The President has also nominated Paul Atkins, a crypto supporter, to chair the SEC.
• The SEC had already closed investigations into Opensea and Robinhood and dropped cases against cryptocurrency exchanges Coinbase and Kraken under the securities laws; it also stated that memecoins would no longer be considered as securities subject to SEC regulation.
• The DOJ memo reflects the Administration’s view that agencies had previously used enforcement actions to achieve regulatory objectives (so called “regulation by enforcement”), an approach they argue stifled innovation in the crypto industry. Generally, however, DOJ’s prosecutorial standards have focused more on law enforcement considerations than promoting economic innovation.
• The memo has immediate implications for ongoing cases, such as a case against Roman Storm, whose “mixing service,” Tornado Cash, is alleged to have helped criminals, including a North Korean cybercrime organization, launder $1 billion in stolen digital assets. Though the memo does not address this specific case, it suggests prosecutors may not pursue similar cases going forward absent meeting the “knowingly” standard or foreign policy considerations.
• The DOJ’s memo aligns with a broader Administration effort to scale back white-collar crime enforcement, marked by a freeze on Foreign Corrupt Practice Act cases and high-profile pardons of executives involved in securities fraud and crypto-related financial violations.