With the meteoric rise and fall (and now somewhat rise again) of the most recognizable cryptocurrency, Bitcoin, more Americans are aware of digital currencies. From anonymity, blockchain technology, and speculative safeguards against potential problems with traditional financial market integrity, cryptocurrencies like Bitcoin – and other alternative digital currencies known as “altcoins” – offer the number of purported benefits consumers, companies, and governments are keen are tracking.
Though advocates for cryptocurrencies can sing praises about their uses and growing assimilation into traditional markets and industries, there’s no denying the reputation cryptocurrency has earned when it comes to crime.
For many of the same reasons cryptocurrency has gained popularity for perfectly legal and legitimate purposes, it’s become a tool used to facilitate a number of criminal offenses – from money laundering to illegal transactions and many types of federal crimes. The federal government is well aware and has already taken steps to increase its focus on cyber-crimes and criminal offenses involving cryptocurrency.
As a means to strike a balance between keeping capital and innovation in the U.S., and enforcing the law, federal lawmakers recently proposed a pair of new bills that would allocate even more resources toward the digital currency market and enforcement of a crypto-related crime.
The Digital Taxonomy Act & Token Taxonomy Act of 2019
On April 9, 2019, U.S. legislators introduced the Digital Taxonomy Act of 2019 (H.R. 2154) and the Token Taxonomy Act of 2019 (H.R. 2144). Both bills are aimed at bolstering the emerging U.S. blockchain industry and sale of non-security tokens, and both have garnered bi-partisan support.
Here’s a brief breakdown of what the bills entail:
- Digital Taxonomy Act – If passed, the Digital Taxonomy Act would funnel $25 million in funding annually (from 2020 to 2024) to aid the FTC in preventing and combatting cryptocurrency crimes. Under the Act, which briefly defines crypto terminology such as “token,” “ledger,” and “digital unit,” the FTC would be required to submit annual reports on its crypto-related regulatory actions to Congress, as well as a specific crypto regulatory enforcement plan.
- Token Taxonomy Act – A new iteration of a measure previously introduced in the last legislative session, the Token Taxonomy Act departs from broad attempts to exclude digital currencies from being defined as securities by clarifying its jurisdiction under the FTC and the Commodity Futures Trading Commission. The Act would amend the Securities Act to align federal law with the new assets. It also calls for more regulatory clarity for companies and regulators in the U.S. blockchain economy, a way to harmonize conflicting initiatives proposed at the state level, and problems with court rulings which have caused confusion over the issue.
Both measures provide Congressional representatives, and especially those who have publicly displayed confusion over technology as commonplace as cell phones, with a resource to better understand digital currencies and where they fit into the U.S. financial market. Many lawmakers are on board with preventing what Ohio Congressman Warren Davidson, who introduced the bills, described as “capital and innovation fleeing the U.S. market.” Still, there are some who question the technology, and the approach to regulating it.
The bills additionally highlight the challenges of legislating new technologies and serve as an example of the evolution of our nation’s laws – an evolution which at times can create difficulties when terms and concepts codified long ago are applied to new innovations without statutory amendments or landmark rulings and legal precedent. The Securities Act, for example, which governs the securities industry and which would be amended by the Token Taxonomy Act, was passed in 1933 – a time of Fireside Chats transmitted over the radio, far away from torrents of 140 characters tweeted in ten-minute intervals, and very far away from digital currencies.
Some states, including Wyoming, are addressing that type of problem by creating new laws, rather than reinterpreting existing ones.
A New Era in the Crypto Space. The Same Criminal Procedures.
What the proposed measures ultimately show is that the U.S. is working on ways to incorporate new and growing technology, while also protecting consumers and regulatory certainty amid confusing spurts of guidance from the SEC and sometimes inconsistent rulings in the courts.
As the future of cryptocurrency is molded, so are the tactics and tools used by law enforcement. Those targeted efforts are already resulting in arrests and new legal developments. Some recent happenings in the crypto crime space include:
- New York State recently announced its first conviction for money laundering involving cryptocurrency. The case involved a dark web business running controlled substances in all 50 states, and resulted in prison sentencing for two defendants.
- The day before NY prosecutors posted their first crypto-crime money laundering win, a 21-year-old from Boston, one of the first people in the nation to be convicted for stealing cryptocurrency through hacking a victim’s cell phone, was sentenced to 10 years in prison for stealing over $7 million in cryptocurrency from more than 40 victims.
- On April 9, Michigan lawmakers passed a state bill to include cryptocurrency in criminal codes that involve illegal acts committed for financial gain. The bill, which must be passed by the state Senate, would amend existing laws written in the 1990s to specify cryptocurrency in provisions related to money laundering, credit card fraud, and embezzlement, among other white collar crimes.
As enforcement efforts and new proposed measures wage on, it’s important to note there’s still a lot of ground to cover – both for the potential of cryptocurrency, and how our laws and government regulate and enforce crimes involving digital assets. Though a new era in the crypto space is emerging, the same standards of law and criminal rules and procedures will still apply to those implicated in investigations or indictments in which cryptocurrency is involved.
As nationally recognized defense attorneys known for our work in cyber litigation, Attorney Ian N. Friedman and our team at Friedman & Nemecek, L.L.C. Attorneys at Law are prepared to assist clients throughout Ohio, the state of Ohio, and the U.S. in complex criminal cases involving cryptocurrency and digital assets – from purported drug trafficking and money laundering to charges of conspiracy, hacking, theft, and more.
Call (888) 694-4645 or contact us online to speak confidentially with an attorney.