In response to U.S. President Joe Biden’s March executive order on Ensuring Responsible Development of Digital Assets, the U.S. Department of Justice released a new report on law enforcement’s role in the space.
The report focuses on the role of a coordinated federal response to reduce crypto crime and crypto-related threats to national security. Furthermore, the DOJ announced the formation of the Digital Asset Coordinator (DAC) Network.
“As digital assets play a growing role in our global financial system, we must work in tandem with departments and agencies across government to prevent and disrupt the exploitation of these technologies to facilitate crime and undermine our national security,” stressed Attorney General Merrick Garland.
The report, entitled “The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets,” is part of a broader effort mandated by the White House to address six priorities related to digital assets: investor protection, illegal finance, financial stability, how the U.S. will maintain its financial stability in the process, financial inclusivity, and responsible innovation.
Laser focus on crime and prosecution of crypto crimes
A key initiative launched by the department’s Criminal Division, DAC will see over 150 federal prosecutors from jurisdictions across the United States, and the DOJ’s legal arms have the opportunity to train in the minutiae of prosecuting and investigating digital crimes. These individuals will serve as subject matter specialists for their DOJ office.
The DOJ report highlights two broad areas of crime, including using crypto to finance or conceal crime and the undermining of the digital asset ecosystem, especially in the area of decentralized finance. From Jan. 2022 to July 2022, DeFi exploits resulted in losses of $1.9 billion, according to Chainalysis.
“DeFi protocols are uniquely vulnerable to hacking, as their open source code can be studied ad nauseam by cybercriminals looking for exploits and it’s possible that protocols’ incentives to reach the market and grow quickly lead to lapses in security best practices,” Chainalysis said in a blog post earlier this year.
The DOJ report is the latest submission in a series of government agency reports that landed on President Biden’s desk following the Mar. 9, 2022, Executive Order. It follows an earlier report released in June 2022 focusing on the challenges of digital asset cross-border crimes and the need for international cooperation.
Federal crypto framework so far criticized
Following the federal agency reports, the White House released a “first-ever” crypto framework, leaning heavily towards consumer and investor protection in the face of the risks posed by digital assets. The framework grants the Securities and Exchange Commission and its sister agency, the Commodity Futures Trading Commission, permission to pursue investigations.
The Crypto Council for Innovation, a global pro-crypto alliance, boasting VC powerhouse Andreessen Horowitz and exchanges Coinbase and Gemini, has criticized the Biden Administration’s new framework for advocating regulation by enforcement.
“It seems to kick the can down the road – we don’t see clear recommendations…Regulation by enforcement is not regulatory clarity,” said CCI CEO Sheila Warren.
Her sentiments were echoed by Senator Pat Toomey of Pennsylvania on Twitter. “@GaryGensler owes investors and innovators alike more clarity on how he intends to apply @SECGov regulations to digital assets,” Toomey opined.
The CCI has committed to engaging with the White House to help policymakers deal with the ever-evolving crypto landscape.
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