The long arm of justice: How far can the DoJ really go in prosecuting foreign actors?

In early October, the U.S. Department of Justice revealed its Cryptocurrency Enforcement Framework, a report laying bare the government’s vision for emerging threats and enforcement strategies in the cryptocurrency space. The document is an important source of insight into how the laws governing digital finance will be soon implemented on the ground.

One of the fundamental principles that the government asserts in the document is its broad extraterritorial jurisdiction over foreign-based actors who use virtual assets in ways that harm U.S. residents or businesses. The guidance sets an extremely low bar for perpetrators of cross-border crime to clear before they face prosecution.

According to the framework, it can be enough for a crypto transaction to “touch financial, data storage, or other computer systems within the United States” to provoke enforcement action. Is the stringency of this approach unprecedented across other domains of financial crimes enforcement? What actual tools does the U.S. government have to counter criminals acting from overseas?

Business as usual

The idea that U.S. law enforcement is justified in prosecuting criminal actors beyond the nation’s borders if their activity has adversely affected individuals, companies, or infrastructure at home is nothing new, especially when it comes to cyber and financial crimes.

Arlo Devlin-Brown, a partner in the white-collar practice of law firm Covington & Burling, commented to Cointelegraph:

“The DOJ has consistently taken the position that U.S. criminal jurisdiction extends to activity with minimal ties to the U.S., and U.S. courts have in many cases embraced the DOJ’s expansive interpretation of its authority. Cryptocurrency businesses that operate outside the U.S. but have any ties to this country — bank accounts, customers, marketing activity — are at risk of enforcement action.”

Dan Newcomb, attorney at law firm Shearman & Sterling, said that there is nothing particularly extraordinary about the extraterritorial approach enshrined in the Cryptocurrency Enforcement Guidelines, as the DoJ has previously used a “wide variety of tools to hold foreign-based actors responsible for crimes punishable under U.S. law.”

The authors of the report note that the U.S. has used anti-money laundering measures against foreign actors dealing in fiat currencies for decades. Asserting similar jurisdiction over those who use digital currencies appears to be a defensible extension of the principle already at work.

Not new for crypto, either

The U.S. government has, on many occasions, gone after foreign persons and entities implicated in cryptocurrency-related crimes. Gail Fuller, a vice president at K2 Intelligence Financial Integrity Network, said that she considers the extensive extraterritorial jurisdiction asserted in the DoJ framework as “broadly consistent with the overall U.S. financial crimes compliance regime,” which is designed to protect the integrity of the U.S. financial system. Fuller commented:

“We’ve seen U.S. enforcement actions for sanctions violations and money laundering that have targeted foreign individuals or entities in cases in which their transactions touched the United States or its banks. In fact, we’ve already seen it in the cryptocurrency context, including with the 2017 indictment of foreign cryptocurrency exchange BTC-e and its Russian executive, Alexander Vinnik.”

In Fuller’s view, the BTC-e case is particularly interesting because on top of money laundering charges, the Department of Justice charged the exchange platform with failing to register as a money services provider in the United States, based on the volume of U.S.-connected transactions it facilitated.

James Farrell, deputy general counsel at trading solutions provider Apifiny, sees the enforcement guidelines as the reminder to the crypto industry about something that has been well-known to the traditional finance for over a decade: If an act of financial misconduct has a substantial effect in the U.S., the SEC and DoJ can and will go after those responsible. “Stating that a single U.S. server is enough just highlights how thin a reed the DOJ needs to assert jurisdiction,” Farrell added.

To Farrell, the novel – and striking – part of the report is invocation of “protective jurisdiction” – effectively worldwide criminal enforcement power – if the DOJ believes that the activity involving crypto may have national security implications. Farrell said:

“You see this concept enshrined in international treaties related to the taking of hostages, terrorist bombings and financing of terrorism. To hear that the same basis may be applied to the cryptocurrency industry was jarring and a marker of how seriously the DOJ is taking potential criminal misuse of this transformative and developing technology.”

Enforcement tools at DoJ’s service

Proclaiming jurisdiction over persons and entities that may be physically located thousands of miles away from U.S. shores is merely a symbolic move if there are no actual means for holding them accountable. U.S. law enforcement, however, commands quite an arsenal.

One heavy weapon is the degree of control that the United States’ financial authorities exercise over the traditional global monetary system. Shearman & Sterling’s Dan Newcomb observed to Cointelegraph:

“The key enforcement tool the U.S. has is the dominant role the U.S. dollar plays in international commerce and the fear conventional financial institutions have of being excluded from U.S. dollar transactions. Most holders of digital assets still need and want to convert those assets at some point into conventional currencies at financial institutions. Barring a digital player from access to conventional financial institutions is a powerful tool.”

Covington & Burling’s Devlin-Brown said that the Justice Department can rely on a number of powerful statutes that can be used to prosecute foreign-based cryptocurrency actors:

“For example, the U.S. money laundering statute can reach almost any dollar-denominated transaction that U.S. authorities can establish as linked to many types of criminal activity. Even a dollar-denominated payment from, say, Germany to Argentina is covered because the transaction would likely involve a U.S. bank as an intermediary.”

Michael Yaeger, a white-collar crime attorney at law firm Carlton Fields and formerly an assistant U.S. attorney for the Eastern District of New York, told Cointelegraph that the DoJ report does not reveal any new instruments for prosecuting foreign-based actors. However, Yaeger noted, the collection of past cases showcased in the document provides “useful examples of its powers, and perhaps signals which instruments will be used more in the future.”

One thing that caught Yaeger’s eye is the fact that the report seems to mention forfeiture efforts more than past DoJ reports on cyber crime:

“When forfeiture is combined with pre-judgment seizure of assets it is not only a powerful remedy, but an unusually fast one. The US has multiple cooperation agreements with other countries including data sharing agreements with foreign law enforcement and intelligence agencies, and has entered specific agreements related to forfeiture and the sharing of financial information.”

There is little doubt that the government is poised to leverage these and other international agreements in enacting its newly itemized enforcement strategy. Promoting cooperation with foreign governments and intergovernmental organizations like the FATF is listed among the crypto framework’s focal points.

The DoJ framework’s language on extraterritorial jurisdiction and cross-border enforcement may sound harsh to some. Yet, in fact the government is not articulating any principles dramatically different from those that are already being invoked in some high-profile crypto-related cases. Stating that these standards will be applied more systematically is only logical considering the expansion and maturation of the borderless realm of digital finance.