Cryptocurrencies have long was seen as the Wild West of money transfers, few online payment and money transfer platforms are as blatant in their appeals for illicit cash as one emphasized, but not mentioned, in a memorandum opinion that was unsealed in U.S. District Court in Washington on May 13, DC . The platform is apparently based in an “extensively sanctioned country” – likely North Korea, according to those within the crypto law space – and advertised its services as circumventing US financial sanctions. According to court records, it was built with the help of an American front company that facilitated the purchase of domain names.
Designed to circumvent financial bans targeting crippling pariah countries, the platform processed more than $10 million worth of bitcoin transferred between the United States and the sanctioned country using a US-based crypto exchange. , which implies, in the opinion, was not knowing that it helped users avoid sanctions.
The advisory, written by Magistrate Judge Zia Faruqui, was likely unsealed because someone has been arrested for operating the crypto platform. It all marks a shift in the way US law enforcement — and the law — is handling cryptocurrencies.
“Issue One: virtual currency is untraceable? MIS. … Issue Two: Sanctions Don’t Apply to Virtual Currencies? WRONG,” Faruqui concludes in his opinion, citing two directly: Saturday Night Live skits parody TV host and political commentator John McLaughlin, who was known for his direct style.
“We’ve been hearing for some time now that cryptocurrency could potentially be used for sanctions evasion,” said Ari Redbord, chief of legal and government affairs at TRM Labs, which oversees crypto fraud and financial crime. “What we see here is the first time the Justice Department has filed a criminal case for using cryptocurrency to evade sanctions.”
The decision informs crypto exchanges that they could be held liable for circumventing sanctions – intentionally or unintentionally – and is a warning to those trying to evade such sanctions that law enforcement will come before them.
For years, cryptocurrency has been viewed as a safe haven for criminal gangs and companies seeking to launder ill-gotten gains. Unlike a bank account, cryptocurrency does not require a name associated with transactions, which are recorded in a public blockchain ledger. This apparent anonymity attracted criminal enterprises in the early days of cryptocurrencies such as bitcoin. “You had the silk roads of the world and the AlphaBays,” said Jessie K. Liu, partner at the law firm of Skadden, Arps, Slate, Meagher & Flom. Liu, a former deputy general counsel at the US Treasury Department who also served with the Justice Department, has prosecuted several crypto cases. “The early reporting on bitcoin made it a sort of secret, anonymous currency that bad guys did bad things.” The platform’s founding principles – and the libertarian, privacy-loving, decentralized attitude it has spawned – contributed to the perception that virtual currencies are untraceable.
What all those groups and individuals overlooked was that the underpinnings of cryptocurrencies — the immutable blockchain that tracks every transaction made — was building a stockpile of evidence for prosecutors. “What is so unique about crypto is that you can trace and track the flow of these funds in a completely open ledger,” says Redbord. “It is only because crypto moves and lives on an open ledger on the blockchain that made this kind of research possible.”
