Got Crypto? Justice Department Scaling Back on Prosecutions

Despite relentless volatility, bitcoin and other cyber-currencies are having a moment as the new administration rolls back regulatory efforts and pushes for a national digital asset stockpile.

To advance national interest in crypto, the administration has taken big steps to reposition the industry more favorably and address what the administration terms as “regulatory weaponization against digital assets.” In his April memo to employees of the Department of Justice (DOJ), Deputy Attorney General Todd Blanche noted changes in government policy including:

• The DOJ no longer considers itself a digital assets regulator and will not undertake enforcement efforts that “have the effect of superimposing regulatory frameworks on digital assets.”
• Cyber exchanges, tumblers, and cold wallets will no longer be targeted due to user activity or rule violations (a cold wallet is a crypto wallet that is not online).
• The DOJ will continue to pursue bad actors involved in embezzlement, digital investment scams, and scams that target investors. Cartels, terrorists, and terrorist organizations will also remain targets of investigation and prosecution.
• For victims of cyber scams, the DOJ will pursue regulatory changes to set the calculation of digital asset loss at a greater market price than previously allowed.
• The Market Integrity and Major Frauds Unit will no longer investigate or prosecute crypto crimes. The National Cryptocurrency Enforcement Team (NCET), created in 2022, has been dissolved.  NCET led the DOJ's effort to investigate and prosecute crimes involving digital assets. Going forward, the Computer Crime and Intellectual Property Section (CCIPS) will no longer identify and support investigations of computer and intellectual property crime, but will provide guidance and liaise with the crypto industry.

A Sea Change for Cryptocurrency

Stepping back from the investigation of crypto crime is intended to support an associated effort by the federal government to make America “the Crypto Capital of the World.” In the past, we have discussed several Internal Revenue Service (IRS) criminal investigations (CI) aimed at tax evasion driven by the opacity of crypto and other forms of digital assets. While the DOJ will continue to pursue large-scale digital investment scams, the prosecutorial focus appears to have shifted away from policing “frameworks on digital assets.” And instead, as noted by the White House, to “harness the power of digital assets for national prosperity.”

No longer tightly reined in, crypto is poised for rapid—and likely loosely regulated—development. While sure to attract investors to the industry, the instability and lack of regulation may also deter others. Nonetheless, activities once considered questionable, or even tax crimes, in the past may not be going forward. Time will tell if the attention will ultimately bring a boom—or a bust.

Have Concerns Over Crypto, Taxes, and What May or May Not be a Good Idea?

If you are involved in a tax crime—with crypto or cash—your best defense is an experienced criminal tax attorney. Strategic legal defense may improve your outcome. Call us at 440-250-9709 or reach out to set up a consultation. We serve domestic and international clients from offices in Cleveland and Chicago.

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