Cybercrime task force monitoring the global digital financial system

Published at: Oct. 24, 2020

The United States faces a growing threat of transnational cybercrime, particularly against its financial system. In what may be the largest prosecution of its kind in U.S. history, the U.S. Department of Justice has charged Texas tech billionaire Bob Brockman in a 39-count indictment with evading $2 billion in taxes. The businessman used encrypted devices and code words to conceal his wire fraud, tax fraud and money laundering within a network of offshore entities and bank accounts. 

As the CEO of Reynolds and Reynolds Co., Brockman contributed 6.4% to the United States’ current annual deficit of $3.1 trillion — more than double the previous record of $1.4 trillion set bailing out the 2007–2008 credit crisis. Aside from Brockman’s tax fraud, the COVID-19 pandemic has deepened the debt, as both shrinking revenues and heightened spending intensify along with rising daily coronavirus infections, which have now hit 8 million people in the U.S. and 39 million worldwide.

Cyber Fraud Task Force

In recent years, cyber and traditional finance crimes have been intersecting at pace, particularly since the start of the COVID-19 pandemic. In an effort to address the growing issue, the U.S. Secret Service merged its Electronic Crimes Task Force and Financial Crimes Task Force into a single unified network dubbed the Cyber Fraud Task Force, with offices in both the U.S. and Europe.

The Cyber Fraud Task Force, or CFTF, was created amid Washington lawmakers supporting legislation that aims to return the Secret Service from within the Department of Homeland Security back to the Treasury Department in order to more effectively investigate cyber-related financial crimes.

As U.S. Attorney General William Barr in the U.S. Department of Justice’s 83-page report, titled “Cryptocurrency Enforcement Framework,” explained:

“Current terrorist use of cryptocurrency may represent the first raindrops of an oncoming storm of expanded use that could challenge the ability of the U.S. and its allies to disrupt financial resources that would enable terrorist organizations to more successfully execute their deadly missions or to expand their influence.”

Related: Darknet, cryptocurrency and two intersecting health crises

The DoJ’s cryptocurrency enforcement framework

The report was released shortly after the DoJ and the Commodity Futures Trading Commission announced criminal charges and concurrent civil action against directors and entities related to BitMEX, a well-known trading platform for crypto futures contracts and other crypto derivatives that failed to register with the CFTC as a Futures Commission Merchant and implement proper Anti-Money Laundering measures.

Related: The case against BitMEX is a compass pointing toward the future of crypto regulation

The “Cryptocurrency Enforcement Framework” report is the second of its kind issued by the Attorney General’s Cyber-Digital Task Force, which was established in February 2018. It lays out the DoJ’s policy formulation in a number of critical areas, including cybersecurity, cross-border data transfers and protection, emerging technologies, cryptocurrency and encryption. It serves as a guide to shape the future vision of U.S. authorities and regulators toward cryptocurrencies as well as details the various ways that cryptocurrency is susceptible to abuse. The report indicates a shift in the DoJ’s perspective in that it recognizes digital assets’ several legitimate uses — a far cry from the department’s previous perception of cryptocurrency use as a red flag for money laundering and criminality. The report rather recognizes cryptocurrency as a legitimate instrument of commerce with law enforcement challenges like any other means of exchange.

Related: Not like before: Digital currencies debut amid COVID-19

The report is divided into three parts: an overview of the cryptocurrency space and its illicit uses; the laws and regulatory agencies that oversee the space; and the current enforcement challenges and potential strategies to address them.

In the first part of the report, the DoJ outlines the legal and illicit uses of cryptocurrency and addresses the emergence of the “next phase of the internet’s evolution,” known as Web 3.0, which will allow users to have greater control in protecting their digital financial information, transactions and identity from companies and governments.

In the second part of the report, the DoJ outlines the laws and regulations that govern the use of cryptocurrency. It acknowledges that in applying existing laws to the nascent sector, the advent of decentralized finance has added “an extra layer of complexity” to the institution’s tasks. As a result, blockchain technology has enabled crime to spread more easily across the globe, increasing the department’s challenge in following the money.

In conjunction with this, the report indicates that DeFi applications, privacy coins, peer-to-peer exchanges and encrypted dark markets could continue to inhibit legitimate supervision and investigation while simplifying the noncompliance of regulations for Anti-Money Laundering and counter terrorism financing, as set by the Financial Action Task Force. The report also describes the roles and responsibilities of other agencies with oversight or enforcement power in the space, including the Financial Crimes Enforcement Network, the Office of Foreign Assets Control, the Office of the Comptroller of the Currency, the Securities Exchange Commission, the CFTC, the Internal Revenue Service, the Central Intelligence Agency and the National Security Agency.

In the third part of the report, the DoJ points out that its enforcement actions are aligned with an international focus to increase AML accountability and broad jurisdiction over cryptocurrency trading platforms.

It explains that the DoJ’s cross-border reach can be quite broad, since a jurisdictional nexus exists when the aim of a criminal activity is to cause harm inside the U.S., to U.S. citizens, or to the interests of either one, even if the individuals committing criminal activity are noncitizens acting entirely abroad. The report goes on to explain that the cross-border nature of cryptocurrency transactions — particularly those utilizing “mixing,” “tumbling” or “encryption” services, which run afoul of U.S. money laundering restrictions — leads to compliance gaps, inconsistent regulations and “jurisdictional arbitrage,” or when participants move virtual assets to jurisdictions where authorities lack regulatory frameworks to support investigations.

Related: Meet DoJ’s crypto czar: Expert take

Joint Cybercrime Action Taskforce

Cross-border links between terrorism and cryptocurrency-related cybercrime underscores the need for a coherent global response. Currently, the U.S. is part of the Joint Cybercrime Action Taskforce, which collaborates with Europol’s European Cybercrime Centre, the European Commission, and the heads of the National Cybercrime Units of EU Member States. The latter has also established the European Union Cybercrime Task Force to develop and promote a harmonized approach across the EU for tackling cybercrime and the criminal misuse of information and communication technology.

According to Europol’s “Internet Organized Crime Threat Assessment 2020” report, privacy-enhancing cryptocurrency wallets, coins and open marketplaces were named as “top threats” for cybercrime, with Monero emerging as a favored transaction tool on the darkweb.

Related: COVID-19 pandemic spurs crypto law updates in J5 countries

EU’s proposed digital asset legislation

Following a policy study that outlines recent developments regarding crypto assets and addresses key regulatory risks from the increase in digital opportunities within the financial sector, the European Commission published a proposed regulation on digital operational resilience for the financial sector and a new proposed directive that amends certain pieces of existing EU financial services legislation to strengthen resilience in digital operations and provide legal clarity on crypto assets.

Published shortly before the DoJ’s report was released, the proposed regulation and directive will form part of the EU’s measures on digital finance for supporting innovation in the sector while mitigating risks. The commission published the EU Digital Finance Strategy, which sets out key priorities for digitally transforming the EU’s financial sector over the coming years, along with a proposed regulation on a pilot regime for distributed ledger technology market infrastructure. The latter will provide detailed rules at the jurisdictional level for comprehensive and harmonized legislation governing distributed ledger technology.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Selva Ozelli, Esq., CPA, is an international tax attorney and certified public accountant who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.
Tags
Law
Aml
Related Posts
Digital intelligence must overcome challenges to solving crypto crimes
While the value of cryptocurrencies has varied wildly in the last year, this has not diminished crypto’s attractiveness to criminals. Many of them are moving their illegal activities underground and outside the view of law enforcement. Because of the public nature of most blockchains, however, this rapid movement shouldn’t be a major concern to law enforcement agencies. With the right tools and training, following the proceeds of crypto-enabled crime is actually not as difficult as it may seem. However, intelligence agencies must have a cryptocurrency investigation plan that includes the right tools to lawfully collect digital evidence and the properly …
Technology / Aug. 20, 2021
The new episode of crypto regulation: The Empire Strikes Back
The latest news has left the decentralized finance community in a collective fetal position. Responding to the threat of increased regulatory oversight, leading decentralized exchange Uniswap recently restricted the trading of certain tokens. Earlier in July, Dan M. Berkovitz, chairman of the Commodity Futures Trading Commission (CFTC), said that DeFi derivatives platforms might contravene the Commodity Exchange Act (CEA): “Not only do I think that unlicensed DeFi markets for derivative instruments are a bad idea, but I also do not see how they are legal under the CEA.” Most worrisome of all is the initial version of the United States …
Technology / Aug. 27, 2021
Outwitting crypto criminals: Why exchanges have to go the extra mile
Crypto criminals are getting more adaptive and smarter than ever before. But how can industry service providers keep up with them? If I say that the crypto industry is highly targeted by cybercriminals and, in particular, organized criminals, I’m sure that no one who has spent a few months within the space would be surprised. And for a valid reason. Due to the new technology and the nascent nature of the sector, criminals and fraudsters have long identified the excellent opportunity that crypto offers to profit via illicit methods. Indeed, any “new” approach to the financial sector is welcomed by …
Technology / Aug. 15, 2021
The Great Estonian Exodus — Crypto Firms Are Leaving Estonia
Back in 2017, the Estonian government rocked the legislative side of the crypto world when they introduced a raft of new laws designed to support crypto projects. These licenses split into two different categories: those looking to operate a crypto exchange and those looking to undertake an initial coin offering. Both company types stood to benefit from the first “real” cryptocurrency licenses anywhere on the planet. As a result of these licenses, entrepreneurs digitally flocked to the small but great Baltic nation. The Estonian government was ahead in a number of ways. Not only was the country a trailblazer with …
Technology / June 27, 2020
Blockchain will thrive once innovators and regulators work together
There is often a perceived tension between regulation and innovation. A pervasive narrative has emerged that these two important parts of our society are at odds with each other. In reality, it’s when these two come together as partners that we can effect change and transform our world for the better. Nowhere is this more true than in the blockchain industry. Over the last few months, we’ve seen seemingly reactionary regulators in different parts of the world try to formulate new rules and guidance in silos, without sufficient input from the key stakeholders most knowledgeable about the technology — the …
Technology / May 15, 2021