The rise of cryptocurrencies and blockchain technology has created significant opportunities for innovation while also introducing risks that can lead to legal and regulatory issues. As a result, companies and individuals operating in this space can find themselves under scrutiny from regulators and law enforcement agencies.
Cryptocurrencies and blockchain technology have been linked to a variety of law enforcement concerns, including:
Money Laundering Risks
Cryptocurrencies have been associated with money laundering risks which has caused a number of companies and their employees to face law enforcement scrutiny, and even prosecution, due to their lack of anti-money laundering (AML) controls. Regulatory and enforcement efforts have also targeted unlicensed and unregistered money services businesses (MSBs) and the use of mixing and anonymization tools to obscure transaction origins.
Unregistered Securities
The Securities and Exchange Commission (SEC) considers digital asset offerings, including Initial Coin Offerings (ICOs), to implicate the U.S. securities laws. As a result, the SEC has actively pursued enforcement actions against offerings deemed to fall under U.S. securities laws, particularly those involving fraud or misleading disclosures.
Frauds and Scams
Fraudulent schemes in the cryptocurrency space remain a primary focus of enforcement. Some common schemes include Ponzi schemes, rug pulls where developers abscond with funds, and phishing scams targeting digital wallets. Regulatory and law enforcement agencies are increasingly aggressive in pursuing the perpetrators of such fraud.
Tax Evasion and Reporting Violations
The Internal Revenue Service (IRS) has intensified its focus on cryptocurrency transactions, targeting individuals and companies that fail to report holdings, transactions, or income derived from digital assets. Non-compliance with international reporting requirements and disclosures to the IRS, including through IRS Form 8949, can result in enforcement actions and significant penalties.
Sanctions Violations
The Office of Foreign Assets Control (OFAC) has highlighted the use of cryptocurrencies in sanctions evasion, including by state actors and individuals on sanctions lists. Enforcement efforts have targeted the use of blockchain technologies to bypass traditional financial systems.
Cybercrime and Ransomware Payments
Cryptocurrencies are often used in cybercrime, including ransomware attacks and illicit marketplace transactions. Federal agencies, including the Federal Bureau of Investigation (FBI) and the Department of Justice (DOJ), focus on tracing illicit transactions, recovering stolen funds, and prosecuting cybercriminals.
Market Manipulation
Crypto markets can be used for manipulative practices such as wash trading, pump-and-dump schemes, and spoofing. The Commodity Futures Trading Commission (CFTC) and the SEC actively seek to bring enforcement actions to address these practices and to protect market integrity.
A Trusted Advisor for Cryptocurrency and Blockchain Enforcement
Given the dynamic nature of cryptocurrency regulation and enforcement, companies and individuals operating in the cryptocurrency industry need sophisticated legal counsel to navigate these challenges effectively. We provide comprehensive advisory services, including:
- Assessing and mitigating money laundering risks by developing robust compliance programs aligned with the Bank Secrecy Act (BSA), Treasury Department regulations, and Financial Crimes Enforcement Network (FinCEN) guidelines.
- Evaluating digital asset offerings for potential securities law exposure and structuring offerings to minimize regulatory risks.
- Responding to subpoenas, regulatory inquiries, and enforcement actions involving fraud, market manipulation, and tax compliance.
- Assisting with voluntary disclosures and communications with government agencies such as the SEC, CFTC, DOJ, IRS, and FinCEN.
- Conducting internal investigations to determine the scope and cause of incidents while preserving privilege.
- Advising on engagement with law enforcement authorities, including the FBI and OFAC, to effectively manage enforcement risks.
With deep experience in white-collar criminal defense and regulatory matters, the Treanor Law Firm can provide the insights and strategic guidance necessary to protect your organization’s interests in the complex and fast-changing cryptocurrency and blockchain landscape.