Source: United States Attorneys General
Thank you, Amanda, for that introduction, and thank you to the American Innovation Project for hosting this conference.
Let me start with a quick note about the critical work my Division is responsible for every day: enforcing criminal laws and vindicating victims’ rights in a wide variety of areas – from narcotics trafficking and violent crime to child exploitation to hacking to financial fraud and money laundering.
And, I know this is of particular interest to this audience: we are also focused on rooting out bad actors from the digital asset ecosystem. We’re doing that so responsible innovators can build and users can act with confidence to take advantage of the opportunities presented by these new technologies.
The digital asset industry plays an increasingly critical role in innovation and economic development in the United States. As digital assets become more commonplace, providing a safe environment for well-intentioned innovators and digital asset holders is central to our economic and national security.
That’s why our Deputy Attorney General, Todd Blanche, has asked me to come here to speak with you about the Justice Department’s focus on even-handed enforcement of the law that allows good actors in the digital asset industry to continue to flourish, while also ensuring bad actors who misuse this technology are held responsible. It is our job as law enforcement officers to provide fair notice and clarity around our enforcement policies. That is what I am here to do today.
In April, the Deputy Attorney General, more commonly known as “the DAG,” issued a Memorandum to the Department’s prosecutors around the country, including those in my Division, which makes plain that the Justice Department’s role is to enforce criminal laws. We are prosecutors, not regulators and not legislators.
Our job, as prosecutors, is to follow the evidence, apply the appropriate legal framework, and seek justice.
As prosecutors, we are also governed by the Constitution, and, in particular, the right of due process. Criminal laws must give fair notice of what is illegal. As the Supreme Court has held, when the government prosecutes someone under a criminal law, “a defendant generally must know the facts that make his conduct fit the definition of the offense….”[1]
The Deputy Attorney General’s Memorandum re-commits the Department to these bedrock principles. The Department will not use federal criminal statutes to fashion a new regulatory regime over the digital assets industry. The Department will not use indictments as a lawmaking tool. The Department should not leave innovators guessing as to what could lead to criminal prosecution.
We know that the industry continues to seek clarity from the Department on its policies. We have received letters and presentations from defense counsel that raise concerns about holding developers of smart contracts criminally liable for operating unlicensed “money transmitting” businesses. We’ve heard arguments against imposing criminal liability on those who publish code and are not otherwise involved in peer-to-peer transactions.
These are complex questions of law and fact, and the Criminal Division will continue to rigorously evaluate each case to make sure that our actions are consistent with the letter and spirit of the Deputy Attorney General’s Guidance, which I’ve also incorporated into my own Guidance to Criminal Division prosecutors.
Our view is that merely writing code, without ill-intent, is not a crime. Innovating new ways for the economy to store and transmit value and create wealth, without ill-intent, is not a crime.
The Criminal Division will, however, continue to prosecute those who knowingly commit crimes — or who aid and abet the commission of crimes — including fraud, money laundering, and sanctions evasion. When bad actors exploit new technologies, it undermines public trust in those technologies and stifles innovation.
And to be clear, to be guilty of aiding and abetting a crime, one has to intend to aid the commission of an underlying crime. It requires specific intent. So does conspiracy. Therefore, if a developer merely contributes code to an open-source project, without the specific intent to assist criminal conduct, aid or abet a crime, or join a criminal conspiracy, he or she is not criminally liable.
When it comes to criminal prosecution, involvement in the digital asset ecosystem should not and will not subject individuals to a different level of scrutiny. It also does not provide someone with any more or any less protection from money laundering, sanctions evasion, and other criminal offenses. Criminals will be prosecuted, whether their tools are old or new. However, these tools must not be misused to target the lawful activities of law-abiding citizens. The law is technology neutral.
So, under the Attorney General’s and the Deputy Attorney General’s leadership, as the DAG’s memo states, the Department is simplifying things to hold bad actors accountable while avoiding the prosecution of unwitting regulatory violations.
Let me get a bit more concrete — in particular with respect to the Department’s use of 18 U.S.C. § 1960, the statute that prohibits unlicensed money transmission. Here are the key points on that topic:
As the DAG’s memo makes clear, the Justice Department will not charge regulatory violations in cases involving digital assets — like unlicensed money transmitting under 1960(b)(1)(A) or (B) — in the absence of evidence that a defendant knew of the specific legal requirement and willfully violated it.
We may, under certain circumstances, bring cases under Section 1960(b)(1)(C), which prohibits the transmission of funds that the defendant knows are derived from a criminal offense, or are intended to be used to support unlawful activity. However, going forward, consistent with principles of notice and fairness, let me make the following clear:
Many developers have relied on regulatory guidance to suggest that non-custodial cryptocurrency software does not constitute an unlicensed money transmitting business. While that guidance may not be binding on the Department, its implications can of course factor into prosecutors’ charging decisions. Therefore, where the evidence shows that software is truly decentralized and solely automates peer-to-peer transactions, and where a third party does not have custody and control over user assets, new 1960(b)(1)(C) charges against the third-party will not be approved. Though, if criminal intent is present, other charges may be appropriate. All of a subject’s conduct and the services they provide end-to-end will be considered.
Generally, developers of neutral tools, with no criminal intent, should not be held responsible for someone else’s misuse of those tools. If a third-party’s misuse violates criminal law, that third-party should be prosecuted — not the well-intentioned developer.
These principles should provide solace to good actors and should be cold comfort for bad actors. Plenty of innovators want to responsibly and lawfully create value. But those with criminal intent may be liable for money laundering or potentially the underlying unlawful activity, sanctions violations, or other applicable laws.
Our job as prosecutors is to root out bad actors from markets — including the cryptocurrency markets. Embezzlement and misappropriation of customers’ funds on exchanges; digital asset investment fraud scams; hacking activity; and exploitation of vulnerabilities in smart contracts have no place in fair markets. They undermine efforts to innovate and they keep the digital assets industry from reaching its full potential.
That is our focus, and we continue to take that work seriously across the Criminal Division.
By way of example, we have recently announced:
The prosecution of multiple members of a China-based money laundering syndicate being run out of the Los Angeles area that laundered millions of dollars belonging to innocent victims who fell prey to cryptocurrency investment scams.
The filing of a civil forfeiture complaint against $225 million linked to cryptocurrency investment fraud and money laundering schemes.
The prosecution of a defendant for a Ponzi scheme that falsely promised investors sky-high profits from investments in cryptocurrency markets purportedly using trading robots powered by AI.
It is good to have this discussion with you at the American Innovation Project. The digital assets industry has a critical role to play in this fight to protect the digital assets ecosystem from bad actors who would exploit consumers, and enrich themselves through theft, scams, or other attacks.
The organizers of this conference have told me that no one is more committed to rooting out bad actors than the software developers, users, and others in the audience – but that well-intentioned innovators should not fear for their liberty. That’s common sense on both fronts.
Thank you for your time.
[1] Elonis v. United States, 575 U.S. 723, 735 (2015).