Feds Ramp Up to Tame ‘Wild West’ of Crypto Crime

The FCPA Blog published an article authored by Olshan white collar litigation partner Robert Appleton and George McEachern entitled “Feds Ramp Up to Tame ‘Wild West’ of Crypto Crime.” “Beyond the use of crypto in bribe schemes,” they write, “recent scandals within the crypto industry have resulted in potentially $10 billion in losses to individual and corporate victims. Despite these losses, including the recent FTX crypto fraud debacle, digital currency, commonly referred to as virtual assets, continues to become more mainstream in business operations and important market opportunities.“ When purchasing and exchanging cryptocurrency, buyers and investors entrust their funds to virtual asset service providers (VASPs), and because the crypto industry is relatively new, bad actors have withdrawn to jurisdictions with minimal anti money laundering oversight: “The belief is that these locations make it easier to conduct money transfers between cryptocurrency exchanges without scrutiny and regulatory oversight, thus presenting real challenges in conducting due diligence.” Moreover, to avoid theft from hacking, most virtual assets are transferred to private non-custodial digital wallets for storage via the blockchain, transfers which are public using various blockchain technologies. “Still,” the authors warn, “these digital wallets are owned by individuals who lack regulatory oversight; therefore, no requirements exist to provide personally identifiable information. For bad actors, these private wallets provide havens from government investigations and potential forfeiture. This represents the ‘wild west’ nature of the industry, and serving legal process for identification, account analysis, forfeiture, or seizure is essentially non-existent.” The authors conclude that the volatility of the cryptocurrency ecosystem makes the importance of specific expertise, technical assistance, and risk management crucial: “Organizations that effectively manage these risks can avoid serious business harm while simultaneously positioning themselves to make informed business decisions on market opportunities that may require legitimate cryptocurrency connectivity.” Olshan is active in the digital currency space and regularly represents companies and individuals facing episodes of intrusion, losses, thefts and hacks, and undertakes compliance initiatives for clients to proactively address crypto risks. For any assistance in this area, contact Olshan partner Robert Appleton.