Money Laundering through Digital Assets

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Introduction

There is little question that digital assets – cryptocurrencies and non-fungible tokens – have revolutionised financial markets. Viewed as currency for the internet age, ‘crypto’ has been characterised as everything from a means to bank the unbanked, to disrupt centralised financial systems and to promote privacy in financial transactions in response to increasing surveillance and monitoring. What was once an esoteric form of payment has become an increasingly mainstream and widely used form of currency.

Although cryptocurrency may become even more prominent in the coming years, the new technology is not without risk, particularly because, in contrast to fiat currency, there is no clear universal regulatory framework. The very attributes that make digital assets unique – the ability to move money quickly and relatively anonymously – make them particularly vulnerable to use as a money laundering tool: ‘cybercriminals [are estimated to] have laundered over $33 billion worth of cryptocurrency since 2017’.[2] To face this threat, regulatory agencies and law enforcement, including the United States Department of Justice (DOJ), have become more nimble in addressing both money laundering through digital assets and the non-criminal use of digital assets as a medium of exchange.

Historically, unlike fiat currency, digital assets were thought to be untraceable, leaving little to no clues as to the identity of the person involved in a transaction, and accordingly were considered a favourite tool of criminals to purchase illicit goods or facilitate illegal transactions; however, the illusion of anonymity largely has proven to be just that. Because cryptocurrency transactions occur on a blockchain – a distributed database that maintains a permanent secure record – those transactions can be recorded and verified, with relevant data such as the time and date of a transaction and a digital wallet address, and in some circumstances it is possible to identify the actual persons involved in virtual transactions. With this information, purportedly impenetrable transactions have become visible and accessible. To be sure, a game of cat and mouse continues, with money launderers using increasingly sophisticated techniques, and law enforcement and blockchain analytics firms using equally sophisticated methods to trace them.

This chapter begins with some background on the laundering of digital assets, then discusses the US government’s ‘whole-of-government’ approach to digital assets followed by the authority of various government agencies to address the laundering of digital assets. It then examines the different focus areas of criminal investigations and prosecutions in recent seminal digital assets money laundering cases, and the regulatory enforcement actions by federal regulatory authorities and state authorities.

The cases demonstrate that as criminals have become more technologically astute, so too have US law enforcement agencies and prosecutors in investigating and prosecuting crimes driven by digital assets, acquiring new information and strategies in the course of each prosecution. Those trends occur alongside the regulatory focus on imposing anti-money laundering (AML) requirements for companies in the digital assets industry so as to prevent, identify and report money laundering through digital assets. Although digital assets may pose some novel issues, certain aspects of the AML framework remain the same. As with fiat currency, compliance measures and safeguards relate to the source, nature and purpose of the transactions at issue, as well as the goods or services being procured. And as with traditional AML issues, enforcement authorities across the government are poised to exercise their unique and overlapping authorities to address both the conduct of bad actors and the compliance efforts of companies in the space.

Money laundering and digital assets

As with fiat currency, the purpose of laundering digital assets is to ‘wash’ funds or cryptocurrency obtained as payment for illegal goods and illicit purposes such that the original criminal source is undetectable. In the crypto space, the original criminal source or specified unlawful activity can derive from a variety of crimes, including drug trafficking, fraud, ransomware, human trafficking, or payments by or to sanctioned entities. Criminal actors then seek to convert the ill-gotten crypto into ‘clean’ currency, for example, by moving the crypto quickly through multiple wallets before cashing it out. According to one blockchain analytics company, illicit addresses sent approximately US$23.8 billion worth of cryptocurrency to exchanges in 2022 – a significant increase from US$14.2 billion in 2021.[3]

As discussed below, recent regulatory and enforcement matters demonstrate the importance of knowing the source of a digital assets transaction in attempting to combat money laundering. Crypto-related entities have increasingly been focused on know your transaction (KYT) procedures, much like the know your customer (KYC) requirements of the Bank Secrecy Act. Just as financial institutions are expected to have credible and verifiable information for the individuals and entities with whom they transact, so too are crypto companies expected to deploy analytics based on public blockchains, which allow them to review the transactions being processed and detect potentially criminal patterns, involvement with known illicit wallets, and other indicia of wrongdoing. They can also manage some of the key financial crime risks associated with digital assets while employing robust controls that promote their many benefits through lessons from the enforcement actions discussed below.

United States’ ‘whole–of-government’ approach to digital assets

In March 2022, President Biden issued an Executive Order outlining a whole-of-government strategy to address both the benefits and risks of digital assets.[4] In particular, the Order references the technology’s ‘significant illicit finance risks, including money laundering, cybercrime and ransomware’, and calls for interagency coordination to facilitate knowledge-sharing and to strengthen law enforcement capabilities.

The United States Department of the Treasury released an action plan in September 2022 to address illicit financing risks of digital assets.[5] This plan described how virtual assets are vulnerable to abuse by illicit actors because of their anonymity, global reach and absence of intermediary financial institutions. In response, the Treasury Department said it would prioritise enforcement against illicit use of virtual assets, help update AML regulations to address novel digital risks and accelerate government training on new technologies.[6] Within the Treasury Department, the Financial Crimes Enforcement Network (FinCEN) issued a joint statement with the Attorney General and state regulators announcing national AML and counter-terrorism financing priorities,[7] including particular concern about ‘cyber-enabled financial crime, ransomware attacks, and the misuse of virtual assets that exploits and undermines their innovative potential, including through laundering of illicit proceeds’.[8]

US regulatory and enforcement authorities and framework

Comprehensive digital assets regulation is a continuing challenge given the speed of technological change and the large number of interested government entities with diverse and potentially divergent perspectives. Against the backdrop of Congressional efforts to refine and improve anti-money laundering laws and penalties, including changes to the Bank Secrecy Act (BSA), the Anti-Money Laundering Act of 2020 (AMLA) and enforcing regulations, both federal and state regulators have focused on AML requirements for the crypto industry. As reflected in enforcement actions, regulators emphasise the importance of thorough and effective compliance policies for digital assets companies. Without these policies, companies are more likely to face regulatory criticism and serious (even existential) penalties.

Digital assets are regulated by several key enforcement authorities, as set out below. In addition, the DOJ has the authority to investigate and prosecute individuals and entities involved in the digital assets industry, including, inter alia, for violations of the money laundering laws, operation of an unlicensed money transmitter business and criminal violations of the BSA, such as the failure to implement and maintain an effective AML programme and adhere to reporting and record-keeping requirements.

FinCEN

The Treasury Department has long viewed cryptocurrency exchanges as money services businesses (MSBs) under the BSA and required them to register with FinCEN.[9] FinCEN, which administers the BSA, has stated that any platform that ‘(1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations, unless a limitation to or exemption from the definition applies to the person’.[10] The AMLA endorsed this view by expanding the definition of financial institutions and money transmitters to include ‘a business engaged in the exchange of currency, funds, or value that substitutes for currency or funds’ and adding to the definition of ‘financial agency’ ‘a service provided with respect to . . . value that substitutes for currency’.[11] FinCEN has stated that, as MSBs, most crypto­currency exchanges fall under its enforcement purview.[12] In 2019, FinCEN issued a comprehensive advisory statement on the applicability of AML rules to ‘convertible virtual currencies’, including mixers and tumblers.[13] That statement advised the industry that as money transmitters, ‘[p]ersons accepting and transmitting [convertible virtual currencies] are required (like any money transmitter), to register with FinCEN as an MSB and comply with AML program, recordkeeping, monitoring, and reporting requirements’.[14] Likewise, regulators agree that the Travel Rule[15] applies to digital asset providers.[16]

Office of Foreign Assets Control

The Treasury Department’s Office of Foreign Assets Control (OFAC) administers economic and trade sanctions, which are generally applicable to all US persons, including all US citizens and permanent resident aliens regardless of where they are located, and all persons and entities within the United States. OFAC sanctions apply to US businesses that transact in virtual currencies or receive virtual currency and convert it to US dollars, or vice versa. Sanctions violations are strict liability offences, meaning that a person can be held liable for a sanctions offence even if the violation was inadvertent or unintentional.

Commodity Futures Trading Commission

The Commodity Futures Trading Commission (CFTC), an independent agency of the US government, regulates the US derivatives markets, which includes futures, swaps and certain kinds of options. The CFTC has recently brought actions involving AML violations for digital assets. As digital assets have grown, so has interest in trading derivatives relating to digital assets, and the CFTC has asserted its jurisdiction over entities servicing digital assets that have failed to adhere to their AML obligations.[17]

State regulatory agencies

States have varied in their approach to the cryptocurrency market. Some have been aggressive leaders in announcing comprehensive regulatory regimes specific to cryptocurrency. New York is a notable example: ‘To conduct virtual currency business activity in New York State, entities can either apply for a BitLicense or for a charter under the New York Banking Law . . . with approval to conduct virtual currency business.’[18] Many states take the same view as FinCEN that crypto­currency exchanges are subject to existing money transmission laws.[19] Forty-nine states and the District of Columbia (DC) require those involved in money transmission to obtain a licence from the relevant state entity. Generally, the statutory definitions of ‘money transmission’ under the various state laws are substantively similar to each other and those of FinCEN, and require the transfer of funds from one party to another.

Relevant federal prosecutions

During the past decade, the DOJ, working in concert with law enforcement agencies and regulatory agencies, has prosecuted significant money laundering matters involving cryptocurrency and other digital assets.[20] In early 2022, the DOJ announced the creation of the National Cryptocurrency Enforcement Team (NCET), an agency-wide task force of attorneys who bring together expertise in cryptocurrency, cybercrime, money laundering and asset forfeiture. NCET’s mission is to identify, investigate and pursue cases involving the criminal use of digital assets, and to provide support and training to federal, state, local and international law enforcement.[21] In March 2022, the FBI launched its Virtual Asset Unit (VAU), which is intended to centralise the FBI’s cryptocurrency expertise and provide blockchain analysis, virtual asset seizure and training throughout the organisation.[22] The NCET and the VAU were credited in part for the US$5 billion in cryptocurrency that was recovered by the DOJ in 2022.[23]

Marketplaces

The NCET and the VAU were preceded by several high-profile prosecutions and enforcement actions in the following categories: (1) matters involving exchanges and other companies that facilitated crime, and (2) matters involving companies with insufficient or absent AML and compliance programmes. Of the first category, the Silk Road prosecution is perhaps the most notable. In 2013, the US Attorney’s Office for the Southern District of New York seized and shuttered Silk Road, described by prosecutors as ‘the most sophisticated and extensive criminal marketplace on the Internet’, allowing users to anonymously procure illegal drugs and services using bitcoin.[24] According to evidence presented at trial, drug dealers and other unlawful merchants used Silk Road to distribute ‘hundreds of kilograms of illegal drugs and other unlawful goods and services’ to more than 100,000 customers.[25] In addition, as demonstrated at trial, these unlawful vendors used Silk Road to launder hundreds of millions of dollars of proceeds from these illegal transactions. On 4 February 2015, Silk Road’s founder, Ross Ulbricht, was convicted of seven criminal counts in connection with his operation and ownership of Silk Road, including money laundering conspiracy.[26] On 29 May 2015, Ulbricht was sentenced to life imprisonment and the forfeiture of US$184 million.[27]

With Silk Road shuttered, criminal actors moved on to the next digital marketplace. In July 2017, federal prosecutors seized and shut down AlphaBay, another online marketplace that, like Silk Road, allowed its users to exchange virtual currency for criminal goods and services, including illegal drugs, firearms, malware and toxic chemicals.[28] AlphaBay was considered substantially larger than Silk Road; it listed more than 350,000 items, compared with Silk Road’s 14,000, at the time each was closed. Alexandre Cazes, the creator and administrator of AlphaBay, was charged by indictment with multiple criminal charges, including a money laundering conspiracy.[29]

The US Attorney’s Office for the Eastern District of California filed a civil forfeiture complaint against the assets of Cazes and his wife located throughout the world.[30] In addition to high-value assets, such as luxury vehicles, residences and a hotel in Thailand, Cazes also possessed millions of dollars in crypto­currency, which were seized by US law enforcement.[31] In shutting down AlphaBay, law enforcement acknowledged that going after illicit marketplaces was akin to playing ‘whack-a-mole’: ‘Critics will say as we shutter one site another will emerge. . . . But that is the nature of criminal work. It never goes away, you have to constantly keep at it, and you’ve got to use every tool in your toolbox.’[32] The lessons learned from Silk Road and AlphaBay, in particular the ability to trace transactions on digital ledgers using blockchain analytics, have informed law enforcement’s approach to crypto-related prosecutions and, as set forth below, opened new avenues to investigate and pursue money laundering prosecutions.

Exchanges

One of the first cases to demonstrate the potential for global cryptocurrency exchanges to serve as money laundering fronts involved the Costa Rica-based centralised digital currency service, Liberty Reserve. Founded in 2006, prosecutors claimed that Liberty Reserve laundered more than US$6 billion prior to its closure by US authorities in May 2013.[33] According to the government, at its peak, Liberty Reserve had more than a million users globally and 200,000 users in the United States and had processed 55 million transactions. Liberty Reserve required minimal and unverified personal information to register. Its accounts could only be funded through third-party payment exchangers in countries that the DOJ described as ‘without significant governmental money laundering oversight’.[34] Once deposited as Liberty Reserve currency, funds could be used to purchase illegal goods, as well as exchange and launder the proceeds of illicit activities.[35] Notably, one group used Liberty Reserve to launder US$45 million procured from a heist of two Middle Eastern banks. To evade regulators in the United States and Costa Rica, Liberty Reserve supplied fictitious transaction information and pretended to have terminated operations in the jurisdiction.

In May 2013, Liberty Reserve was shuttered by US federal prosecutors and law enforcement as part of the ‘global takedown’ of Liberty Reserve following investigations by authorities in 17 countries. The US Attorney’s Office for the Southern District of New York and the DOJ’s Money Laundering and Asset Recovery Section charged founder Arthur Budovsky and six others with money laundering and operating an unlicensed money service business.[36] The US government seized or restrained 45 bank accounts and US$25 million, seized domain names, arrested five of the seven individuals named in the indictment, and sought legal assistance from 15 countries through mutual legal assistance treaty requests.[37] In January 2016, Budovsky pleaded guilty to one count of conspiracy to commit money laundering for operating a money laundering enterprise through his global digital currency business, Liberty Reserve.[38] On 6 May 2016, Budovsky was sentenced to 20 years in prison.[39]

Mixers and tumblers

The DOJ has brought a number of actions against the operators of ‘mixer’ or ‘tumbler’ services. These services operate in a number of ways; for example, they can allow individuals to mix cryptocurrency from multiple different users, thereby combining illicit and clean funds and then allowing a user to withdraw their initial contribution and send ‘clean’ cryptocurrency. Although proponents of mixer and tumbler services claim that they advance financial privacy, their critics claim that they make law enforcement’s job more difficult by obscuring the source of a digital transaction and aid money laundering by tumbling illicit and ‘clean’ funds to obscure criminal proceeds.

Although the DOJ is not the only agency focused on mixers and tumblers, its prosecutions of these have received considerable attention. In February 2020, the US Attorney’s Office for the District of Columbia indicted and arrested Larry Harmon, the alleged founder, operator and administrator of Helix, a bitcoin tumbler. Harmon was charged with money laundering conspiracy, operating an unlicensed money transmitting business and conducting money transmission without a DC licence.

The DOJ alleged that Helix laundered hundreds of millions of dollars of illicit narcotics proceeds and other criminal profits by allowing customers, for a fee, to send bitcoin in a manner intentionally designed to conceal the path of the bitcoin. ‘Harmon advertised Helix to customers on the darknet as a way to conceal transactions from law enforcement.’[40] In addition to the criminal prosecution, FinCEN assessed a US$60 million civil penalty against Harmon, the founder, administrator and primary operator of Helix, and another mixer, Coin Ninja, for wilful violations of the BSA and related regulations by failing to register Helix as an MSB, failing to implement and maintain an effective AML programme and failing to report suspicious activities.[41] This marked the first penalty FinCEN levied against a bitcoin mixer.

In April 2021, the DOJ brought another action concerning a mixer, Bitcoin Fog, ‘the longest-running cryptocurrency “mixer”’ and ‘a go-to money laundering service for criminals’.[42] The DOJ charged Roman Sterlingov with money laundering conspiracy, operating an unlicensed money transmitting business and conducting money transmission without a DC licence. Allegedly, Sterlingov was involved with moving more than 1.2 million bitcoin through Bitcoin Fog – valued at approximately US$335 million. Much of this activity came from darknet marketplaces and was linked to illegal narcotics, computer fraud and identity theft.[43]

Although the use of mixers and tumblers presents obstacles to law enforcement with respect to the tracing of digital assets, it is possible to ‘untumble’ or ‘de-mix’ digital assets and determine the source and provenance of the criminal funds. Analytics tools with advanced tracing algorithms can enable investigators to follow the flow of illicit funds from a known cryptocurrency address. Although ‘[m]ixers and tumblers can slow down that process’ and impede the progress of an investigation, they may not prevent the tracing of illicit proceeds.[44] Although mixers and tumblers remain, at a minimum, an inconvenience for law enforcement, given investigators’ increasing access to sophisticated technology, those services do not provide a safe haven for criminals, as they once did.

Laundering proceeds of cybercrime

Digital assets can provide an avenue for criminals to launder the proceeds of ransomware attacks, hacking and other cybercrime into clean funds. One example of this pattern arose out of the 2016 hack of digital currency exchange Bitfinex, which resulted in the theft of 119,754 bitcoin.[45] In February 2022, the DOJ announced the arrest of two individuals, Ilya Lichtenstein and Heather Morgan, for an alleged conspiracy to launder cryptocurrency that was stolen during the hack, then valued at approximately US$4.5 billion.[46] According to the DOJ, unauthorised transactions moved bitcoin into a digital wallet controlled by Lichtenstein, which was then laundered through a series of complicated transactions before its eventual deposit into accounts controlled by the pair. That laundering, which the government described as a ‘methodical and calculated scheme’, allegedly included depositing and withdrawing the funds at a variety of virtual currency exchanges as well as converting between different virtual currencies. At the time of the arrests, law enforcement had seized US$3.6 billion in involved cryptocurrency.[47] Although challenging, law enforcement is developing capabilities to trace the proceeds of cybercrime through those elaborate laundering schemes that exploit the capabilities of digital assets.

Regulatory actions

In an effort to prevent money laundering through virtual assets, federal and state regulators have brought a variety of enforcement actions based on alleged AML deficiencies. Additionally, regulators are utilising collaborative cross-agency efforts and various regulatory authorities to address this rapidly developing space.

Federal BSA/AML enforcement actions

Notably, regulators have undertaken cross-agency enforcement actions to address AML issues in the digital assets space. In one such collaborative action in August 2021, the CFTC and FinCEN entered into settlements with BitMEX, a virtual currency derivative exchange, to resolve allegations that, inter alia, it operated as an unregistered futures commission merchant and provided money transmission services, wilfully failing to comply with its obligations under the BSA.[48] In addition to violating the Commodity Exchange Act, the CFTC found that BitMEX failed to maintain adequate customer due diligence policies and procedures. FinCEN found that BitMEX failed to maintain a compliant AML programme, file suspicious activity reports or implement adequate controls to restrict Americans from accessing its platforms.[49] The joint CFTC-FinCEN investigation resulted in a total combined penalty of US$100 million for both agencies, with a credit for US$20 million assuming completion of remediation.[50] The FinCEN settlement also required the engagement of an independent consultant to conduct a historical analysis of its transaction data, to determine whether BitMEX must file additional reports of suspicious activity.

In October 2022, Bittrex, a virtual currency exchange, settled charges with FinCEN for US$29 million for alleged failures in its AML programme.[51] FinCEN charged Bittrex with wilful violations of the BSA, including insufficient transaction monitoring and a lack of risk-based policies and procedures. FinCEN noted that Bittrex failed to appropriately address the risks associated with certain anonymity-enhanced cryptocurrencies traded on Bittrex. As a result, FinCEN found that Bittrex failed to detect, investigate and report a multitude of transactions linked to darknet marketplaces and sanctioned jurisdictions. Bittrex simultaneously agreed to pay US$24 million to settle potential civil liability with OFAC (its largest digital asset enforcement action to date) for thousands of apparent violations of multiple sanctions programmes.[52]

State regulatory actions

State regulators have also become more active and have expanded their regulatory footprint to include virtual asset service providers. In particular, the New York State Department of Financial Services (NYDFS) has become a significant player. It maintains a system of licensure for digital asset businesses, awarding ‘BitLicenses’ and enforcing regulation, including the requirement that a licensee maintain an effective and compliant AML programme.[53] The NYDFS has pursued several recent actions that demonstrate its keen interest in crypto regulation and its ability to control entry into the space within its jurisdiction.

Robinhood is a mobile-based stock-trading platform that also offers crypto­currency trading through a subsidiary, Robinhood Crypto.[54] In August 2022, in its first virtual currency enforcement action, the NYDFS fined Robinhood Crypto US$30 million for failures in its AML programme and other violations.[55] In announcing the fine, the NYDFS emphasised that Robinhood Crypto’s AML programme and transaction monitoring was inadequate, understaffed and provided insufficient resources given its size and risk profile.[56] As part of its settlement with the NYDFS, Robinhood Crypto agreed to hire an independent consultant to oversee its remediation efforts.[57]

In January 2023, cryptocurrency exchange Coinbase agreed to a US$50 million penalty to settle NYDFS claims and agreed to invest another US$50 million in its compliance function.[58] Among other issues, the NYDFS found that Coinbase’s KYC practices were ‘immature and inadequate’. The NYDFS also found that Coinbase was unable to keep up with the growth of alerts generated by its transaction monitoring programme and, as a result, failed to investigate and report some suspicious activity in a timely manner. During the course of the investigation, the NYDFS installed an independent monitor to evaluate and assist in the remediation.[59]

Designation as a primary money laundering concern

On 18 January 2023, in its first action under the Combating Russian Money Laundering Act, FinCEN determined that Bitzlato Limited (Bitzlato), a virtual currency exchange, facilitated money laundering transactions for Russian ransomware actors.[60] Accordingly, it designated Bitzlato as a ‘primary money laundering concern’ and prohibited transmittals involving Bitzlato by any covered financial institution.[61] As set forth in a related criminal complaint filed against its co-founder, Bitzlato marketed itself as requiring minimal identification from its users and allowed customers to provide information belonging to ‘straw man’ registrants.[62] Bitzlato is estimated to have exchanged more than US$700 million in cryptocurrency with Hydra Market, its largest counterparty in cryptocurrency transactions and the largest and longest running darknet market in the world.[63] FinCEN’s designation of Bizlato prevents certain financial institutions from transacting with that entity, limiting its access to the US financial system.

OFAC designations

Somewhat similarly, OFAC’s designation of an entity in the digital asset space restricts US persons and anyone in the United States from transacting with that entity. In August 2022, the Treasury Department sanctioned Tornado Cash, a virtual currency mixer.[64] Tornado Cash is an open source, non-custodial, fully decentralised tumbler that was considered the most popular coin-mixing service on the Ethereum blockchain.[65] OFAC found that bad actors had laundered more than US$7 billion of cryptocurrency through Tornado Cash, including approximately US$455 million in funds allegedly stolen by the Lazarus Group, a sanctioned state-sponsored hacking group in North Korea.[66] OFAC’s designation of Tornado Cash followed the May 2022 designation of Blender.io, another virtual currency mixer, which was used to process more than US$20.5 million from another hack by Lazarus Group. On 8 September 2022, six individuals who had previously used Tornado Cash for lawful purposes filed a complaint in the Western District of Texas challenging OFAC’s authority to designate the protocol.[67] A second lawsuit raising similar claims was filed in the Northern District of Florida on 12 October 2022.[68]

Conclusion

Although innovation continues to evolve the digital assets industry, the regulatory landscape and enforcement priorities have taken great strides to keep pace. The prized anonymity and access to sophisticated laundering techniques that incentivise some criminals to use digital assets as a means to launder crime proceeds have also drawn law enforcement interest and regulatory scrutiny in the United States and globally. As the digital assets industry continues to mature, we can expect that actions by regulators and law enforcement agencies will be significant in shaping how the industry both operates and addresses the risks of money laundering.


Footnotes

[1] Sharon Cohen Levin, Anthony Lewis and Kamil Shields are partners and Tracy Nelson Wirth is an associate at Sullivan & Cromwell LLP. The authors wish to thank Lisa Mendola-D’Andrea and Sheeva Nesva, associates at Sullivan & Cromwell LLP, for their many contributions to this chapter.

[2] Chainalysis, ‘DeFi Takes on Bigger Role in Money Laundering But Small Group of Centralized Services Still Dominate’ (26 January 2022) (https://blog.chainalysis.com/reports/2022-crypto-crime-report-preview-cryptocurrency-money-laundering/ (accessed 26 July 2023)).

[3] Chainalysis, ‘Crypto Money Laundering: Four Exchange Deposit Addresses Received over $1 Billion in Illicit Funds in 2022’ (26 January 2023) (https://blog.chainalysis.com/reports/crypto-money-laundering-2022/#:~:text=Four%20deposit%20addresses%20cracked%20%24100,for%20%2438%20million%20in%20total (accessed 26 July 2023)).

[4] Executive Order (No. 14067) on Ensuring Responsible Development of Digital Assets (9 March 2022) (https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets (accessed 26 July 2023)).

[5] US Dep’t of the Treasury, ‘Action Plan to Address Illicit Financing Risks of Digital Assets’ (September 2022) (https://home.treasury.gov/system/files/136/Digital-Asset-Action-Plan.pdf (accessed 26 July 2023)).

[6] ibid., at Section IV.

[7] US Department of the Treasury, Financial Crimes Enforcement Network (FinCEN), et al., ‘Interagency Statement on the Issuance of the Anti-Money Laundering/Countering the Financing of Terrorism National Priorities’ (30 June 2021) (https://www.fincen.gov/sites/default/files/shared/Statement%20for%20Banks%20(June%2030%2C%202021).pdf (accessed 26 July 2023)). See also FinCEN, ‘Statement on the Issuance of the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) National Priorities’ (30 June 2021) (https://www.fincen.gov/sites/default/files/shared/Statement%20for%20Non-Bank%20Financial%20Institutions%20(June%2030%2C%202021).pdf (accessed 26 July 2023)).

[8] FinCEN, ‘Anti-Money Laundering and Countering the Financing of Terrorism National Priorities’ (30 June 2021) (https://www.fincen.gov/sites/default/files/shared/AML_CFT%20Priorities%20(June%2030%2C%202021).pdf (accessed 26 July 2023)).

[9] FinCEN, FIN-2013-G001 (18 March 2013) (https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf (accessed 26 July 2023)); FIN-2019-G001 (9 May 2019) (https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf (accessed 26 July 2023)).

[10] FinCEN, FIN-2013-G001 (op. cit note 9), at 3 (emphasis in original).

[11] 31 U.S.C. § 5312(a)(2)(J).

[12] FinCEN, FIN-2013-G001 ( (op. cit note 9); FIN-2019-G001 (op. cit note 9). See 31 C.F.R. § 1010.810(f); 31 C.F.R. § 1010.810(b)(8).

[13] FinCEN, FIN-2019-A003 (9 May 2019) (https://www.fincen.gov/sites/default/files/advisory/2019-05-10/FinCEN%20Advisory%20CVC%20FINAL%20508.pdf (accessed 26 July 2023)). FinCEN uses the term ‘virtual currency’ to refer to ‘a medium of exchange that can operate like currency but does not have all the attributes of “real” currency, . . . including legal tender status’. FIN-2019-G001 (citing FIN-2013-G001) (op. cit note 9), at 7. It defines ‘convertible virtual currency’ as “a type of virtual currency that either has an equivalent value as currency, or acts as a substitute for currency, and is therefore a type of “value that substitutes for currency”’. id.

[14] FIN-2019-G001 (citing FIN-2013-G001) (op. cit note 9), at 12.

[15] The Travel Rule requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution. See 31 C.F.R. § 1010.410(f).

[16] FIN-2019-G001 (citing FIN-2013-G001) (op. cit note 9), at 11.

[17] See, e.g., Commodity Futures Trading Commission (CFTC), Release Number 8715-23, ‘Statement of CFTC Division of Enforcement Director Ian McGinley on the Ooki DAO Litigation Victory’ (9 June 2023) (https://www.cftc.gov/PressRoom/PressReleases/8715-23 (accessed 26 July 2023)); Release Number 8680-23, ‘CFTC Charges Binance and Its Founder, Changpeng Zhao, with Willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange’ (27 March 2023) (https://www.cftc.gov/PressRoom/PressReleases/8680-23 (accessed 26 July 2023)).

[18] N.Y. State Dep’t of Fin. Servs., ‘Virtual Currency Business’ (https://www.dfs.ny.gov/virtual_currency_businesses (accessed 26 July 2023)).

[19] See, e.g., Cal. Dep’t of Fin. Protection & Innovation, Interpretive Opinion, Cryptocurrency Exchange Platform (3 November 2022) (https://dfpi.ca.gov/2022/11/07/cryptocurrency-exchange-platform-7/ (accessed 26 July 2023)); Eric Lipton and David Yaffe-Bellany, ‘Crypto Industry Helps Write, and Pass its Own Agenda in State Capitols’, The N.Y. Times (10 April 2022) (https://www.nytimes.com/2022/04/10/us/politics/crypto-industry-states-legislation.html#:~:text=In%20July%2C%20the%20state%20ordered%20a%20dozen%20A.T.M.,the%20companies%2C%20documents%20obtained%20by%20The%20Times%20show (accessed 26 July 2023)).

[20] See U.S. Dep’t of Justice (DOJ), Report of the Attorney General’s Cyber Digital Task Force, ‘Cryptocurrency: Enforcement Framework’ (October 2020) (https://www.justice.gov/archives/ag/page/file/1326061/download (accessed 26 July 2023)).

[21] DOJ, press release 22-140, ‘Justice Department Announces First Director of National Cryptocurrency Enforcement Team’ (17 February 2022) (https://www.justice.gov/opa/pr/justice-department-announces-first-director-national-cryptocurrency-enforcement-team (accessed 26 July 2023)).

[22] James Rundle and Catherine Stupp, ‘Justice Department Installs New FBI Crypto Crime Unit’, The Wall Street Journal (17 February 2022) (https://www.wsj.com/articles/justice-department-installs-new-fbi-crypto-crime-unit-11645129414 (accessed 26 July 2023)).

[23] DOJ, Office of Public Affairs, ‘Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime’ (2 March 2023) (https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-remarks-american-bar-association-national (accessed 26 July 2023)).

[24] Superseding Indictment, U.S. v. Ulbricht, 1:14-Cr.-68 (S.D.N.Y. Aug. 21, 2014), ECF No. 52.

[25] U.S. Attorney’s Office for the Southern District of New York (U.S. Att’y’s Off., S.D.N.Y.), press release, ‘Ross Ulbricht, A/K/A “Dread Pirate Roberts,” Sentenced In Manhattan Federal Court To Life In Prison’ (29 May 2015) (https://www.justice.gov/usao-sdny/pr/ross-ulbricht-aka-dread-pirate-roberts-sentenced-manhattan-federal-court-life-prison (accessed 26 July 2023)).

[26] U.S. Att’y’s Off., S.D.N.Y., press release, ‘Statement of Manhattan U.S. Attorney Preet Bharara On The Conviction Of Ross William Ulbricht’ (4 February 2015) (https://www.justice.gov/usao-sdny/pr/statement-manhattan-us-attorney-preet-bharara-conviction-ross-william-ulbricht (accessed 26 July 2023)).

[27] U.S. Att’y’s Off., S.D.N.Y., press release, ‘Ross Ulbricht A/K/A “Dread Pirate Roberts,” Sentenced In Manhattan Federal Court To Life In Prison’ (op. cit. note 25).

[28] DOJ, press release, ‘AlphaBay, the Largest Online “Dark Market,” Shut Down’ (20 July 2017) (https://www.justice.gov/opa/pr/alphabay-largest-online-dark-market-shut-down (accessed 26 July 2023)).

[29] id. See also Redacted Indictment, U.S. v. Cazes, 1:17-Cr.-144 (E.D. Cal. July 20, 2017), ECF No. 7.

[30] The assets subject to civil forfeiture were located in Thailand, Cyprus, Lichtenstein and Antigua and Barbuda. See Verified Complaint for Forfeiture in Rem, U.S. v. Cazes et al., 1:17-Cv.-967 (E.D. Cal. July 19, 2017), ECF No. 1; see also Amended Verified Complaint for Forfeiture in Rem, U.S. v. Cazes et al., 1:17-Cv.-967 (E.D. Cal. July 26, 2017), ECF No. 3.

[31] Verified Complaint for Forfeiture in Rem, U.S. v. Cazes et al., 1:17-Cv.-967 (E.D. Cal. July 19, 2017), ECF No. 1; Amended Verified Complaint for Forfeiture in Rem, U.S. v. Cazes et al., 1:17-Cv.-967 (E.D. Cal. July 26, 2017), ECF No. 3. Alexandre Cazes took his own life shortly after his arrest by Thai authorities. See DOJ, press release, ‘AlphaBay, the Largest Online “Dark Market,” Shut Down’ (op. cit. note 28).

[32] Tom Winter, ‘AlphaBay, Hansa Shut, but Drug Dealers Flock to Dark Web DreamMarket’, NBC News (20 July 2017) (https://www.nbcnews.com/news/us-news/alphabay-hansa-shut-drug-dealers-flock-dark-web-dreammarket-n785001 (accessed 26 July 2023)).

[33] U.S. Att’y’s Off., S.D.N.Y., press release, ‘Manhattan U.S. Attorney Announces Charges Against Liberty Reserve, One Of World’s Largest Digital Currency Companies, and Seven Of Its Principals And Employees For Allegedly Running A $6 Billion Money Laundering Scheme’ (28 May 2013) (https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-charges-against-liberty-reserve-one-world-s-largest (accessed 26 July 2023)).

[34] id.

[35] id.

[36] See Liberty Reserve Press Conference, ‘Prepared Remarks of U.S. Attorney Preet Bharara’ (28 May 2013) (https://www.justice.gov/sites/default/files/usao-sdny/legacy/2013/05/30/remarks.pdf (accessed 26 July 2023)); U.S. Att’y’s Off., S.D.N.Y., ‘The Liberty Reserve Global Takedown’ (www.justice.gov/usao/nys/pressconference/libertyreserve/visual.pdf (accessed 26 July 2023)).

[37] id.

[38] See DOJ, press release 16-113, ‘Founder of Liberty Reserve Pleads Guilty to Laundering More Than $250 Million through His Digital Currency Business’ (29 January 2016) (https://www.justice.gov/opa/pr/founder-liberty-reserve-pleads-guilty-laundering-more-250-million-through-his-digital (accessed 26 July 2023)).

[39] See DOJ, press release 16-541, ‘Liberty Reserve Founder Sentenced to 20 Years for Laundering Hundreds of Millions of Dollars’ (6 May 2016) (https://www.justice.gov/opa/pr/liberty-reserve-founder-sentenced-20-years-laundering-hundreds-millions-dollars (accessed 26 July 2023)).

[40] See DOJ, press release, ‘Ohio Resident Charged with Operating Darknet-Based Bitcoin “Mixer,” which Laundered Over $300 Million’ (13 February 2020) (https://www.justice.gov/opa/pr/ohio-resident-charged-operating-darknet-based-bitcoin-mixer-which-laundered-over-300-million (accessed 27 July 2023)).

[41] FinCEN, press release, ‘First Bitcoin “Mixer” Penalized by FinCEN for Violating Anti-Money Laundering Laws’ (9 October 2020) (https://www.fincen.gov/news/news-releases/first-bitcoin-mixer-penalized-fincen-violating-anti-money-laundering-laws (accessed 27 July 2023)).

[42] DOJ, press release, ‘Individual Arrested and Charged with Operating Notorious Darknet Cryptocurrency “Mixer”’ (28 April 2021) (https://www.justice.gov/opa/pr/individual-arrested-and-charged-operating-notorious-darknet-cryptocurrency-mixer (accessed 27 July 2023)).

[43] id.

[44] See Hudson Intelligence, ‘Mixers and Coinjoin: Can Investigators Trace Transactions After They Hit a Mixer?’ (https://www.fraudinvestigation.net/cryptocurrency/tracing/mixers-and-coinjoin#:~:text=Can%20Investigators%20Trace%20Transactions%20After%20They%20Hit%20a%20Mixer%3F (accessed 27 July 2023)).

[45] DOJ, press release, ‘Two Arrested for Alleged Conspiracy to Launder $4.5 Billion in Stolen Cryptocurrency’ (8 February 2022) (https://www.justice.gov/opa/pr/two-arrested-alleged-conspiracy-launder-45-billion-stolen-cryptocurrency (accessed 27 July 2023)).

[46] id.

[47] id.

[48] FinCEN, press release, ‘FinCEN Announces $100 Million Enforcement Action Against Unregistered Futures Commission Merchant BitMEX for Willful Violations of the Bank Secrecy Act’ (10 August 2021) (https://www.fincen.gov/news/news-releases/fincen-announces-100-million-enforcement-action-against-unregistered-futures (accessed 27 July 2023)); CFTC, Release Number 8412-21, ‘Federal Court Orders BitMEX to Pay $100 Million for Illegally Operating a Cryptocurrency Trading Platform and Anti-Money Laundering Violations’ (10 August 2021) (https://www.cftc.gov/PressRoom/PressReleases/8412-21 (accessed 27 July 2023)).

[49] See id.; In re HDR Global Trading Ltd. et al., Assessment of Civil Money Penalty, Number 2021-02, FinCEN (10 August 2021) (https://www.fincen.gov/sites/default/files/enforcement_action/2021-08-10/Assessment_BITMEX_508_FINAL.pdf (accessed 27 July 2023)).

[50] id.

[51] U.S. Dep’t of Treasury, press release, ‘Treasury Announces Two Enforcement Actions for over $24M and $29M Against Virtual Currency Exchange Bittrex, Inc’ (11 October 2022) (https://home.treasury.gov/news/press-releases/jy1006 (accessed 27 July 2023)).

[52] id.

[53] New York Codes, Rules and Regulations, 23 CRR-NY 200.15.

[54] Robinhood, ‘What We Offer: Crypto’ (https://robinhood.com/us/en/about/crypto/ (accessed 27 July 2023)).

[55] N.Y. State Dep’t of Fin. Servs. (NYDFS), press release, ‘DFS Superintendent Harris Announces $30 Million Penalty on Robinhood Crypto for Significant Anti-Money Laundering, Cybersecurity & Consumer Protection Violations’ (21 August 2022) (https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202208021 (accessed 27 July 2023)).

[56] id.

[57] id.

[58] NYDFS, press release, ‘Superintendent Adrienne A. Harris Announces $100 Million Settlement with Coinbase, Inc. after DFS Investigation Finds Significant Failings in the Company’s Compliance Program’ (4 January 2023) (https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202301041 (accessed 27 July 2023)).

[59] id.

[60] FInCEN, press release, ‘FinCEN Identifies Virtual Currency Exchange Bitzlato as a “Primary Money Laundering Concern” in Connection with Russian Illicit Finance’ (18 January 2023) (https://www.fincen.gov/news/news-releases/fincen-identifies-virtual-currency-exchange-bitzlato-primary-money-laundering (accessed 27 July 2023)).

[61] id.

[62] See U.S. Att’y’s Off. E.D.N.Y., press release, ‘Founder and Majority Owner of Bitzlato, a Cryptocurrency Exchange, Charged with Unlicensed Money Transmitting’ (18 January 2023) (https://www.justice.gov/usao-edny/pr/founder-and-majority-owner-bitzlato-cryptocurrency-exchange-charged-unlicensed-money (accessed 27 July 2023)).

[63] id.

[64] U.S. Dep’t of Treasury, press release, ‘U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash’ (8 August 2022) (https://home.treasury.gov/news/press-releases/jy0916 (accessed 27 July 2023)).

[65] See Tornado Cash (archived site) (https://web.archive.org/web/20220808144431/https://tornado.cash/ (accessed 27 July 2023)).

[66] U.S. Dep’t of Treasury, press release, ‘U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash’ (op. cit. note 64).

[67] See Complaint, Joseph Van Loon et al. v. Dep’t of Treasury et al., 6:22-Cv.-920 (W.D. Tex. Sept. 8, 2022), ECF No. 1. See also Amended Complaint, Joseph Van Loon et al. v. Dep’t of Treasury et al., 6:22-Cv.-920 (W.D. Tex. Nov. 22, 2022), ECF No. 21.

[68] See Complaint, Coin Center et al. v. Janet Yellen et al., 3:22-Cv.-20375 (N.D. Fla. Oct. 12, 2022), ECF No. 1. See also Amended Complaint, Coin Center et al. v. Janet Yellen et al., 3:22-Cv.-20375 (N.D. Fla. Dec. 8, 2022), ECF No. 9.

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