The US Department of Justice (DOJ) is stepping away from the previous administrations’ “regulation by prosecution” stance on cryptocurrencies. The DOJ announced that it will no longer pursue criminal enforcement actions that effectively impose regulatory frameworks on digital asset companies.
According to a new memorandum entitled “Ending Regulation by Prosecution,” the policy prioritized crypto fraud and the use of digital assets to commit terrorism, drug trafficking, computer crime and human smuggling. Prosecutors will not charge “regulatory violations” involving digital assets.
Trump Directs Federal Agencies to Promote Open Access to Blockchain Networks and Banking Services
In a memorandum, the DOJ announced a significant policy shift, saying it would no longer pursue criminal enforcement actions that effectively impose regulatory frameworks on digital asset companies. The DOJ’s memorandum criticizes the previous administration’s “reckless strategy of regulation by prosecution” and formalizes its support for President Trump’s Executive Order 14178 (“Strengthening American Leadership in Digital Financial Technology.”)
The policy shifts the DOJ’s focus to “end the regulatory weaponization against digital assets, ” reorienting its investigations and prosecution on defendants who cause financial harm to digital asset investors, consumers, and individuals who use digital assets to aid in criminal conduct.
The memorandum essentially enforces Trump’s Executive Order 14178 and articulates the DOJ’s task under the EO.
Emphasizing the Value of Digital Assets
In the introduction of the memorandum, Deputy Attorney General Todd Blanche highlights the importance of the digital asset industry, explaining:
“The digital assets industry is critical to the Nation’s economic development and innovation. Thus, as noted in Executive Order 14178, clarity and certainty regarding enforcement policy “are essential to supporting a vibrant and inclusive digital economy and innovation in digital assets.” President Trump has also made clear that “[w]e are going to end the regulatory weaponization against digital assets.”
The memorandum underscores that the DOJ is not a digital assets regulator, noting
“the prior Administration used the Justice Department to pursue a reckless strategy of regulation by prosecution, which was ill conceived and poorly executed.”
Blanche notes the DOJ “will no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets while President Trump’s actual regulators do this work outside the punitive criminal justice framework.”
In pivoting away from the DOJ under the previous administration, this DOJ’s investigations and prosecutions involving digital assets will:
“…focus on prosecuting individuals who victimize digital asset investors, or those who use digital assets in furtherance of criminal offenses such as terrorism, narcotics and human trafficking, organized crime, hacking, and cartel and gang financing.”
Digital Assets Enforcement Priorities Under EO 14178
According to the memorandum, Executive Order 14178 tasks the DOJ and others with:
“…protecting and promoting” (1) “the ability of individual citizens and private-sector entities alike to access and use for lawful purposes open public blockchain networks without persecution”; and (2) “fair and open access to banking services for all law-abiding individual citizens and private-sector entities alike.”
In accordance with its task, the DOJ will no longer engage in regulation by prosecution. Specifically, the DOJ should cease targeting “virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations” unless the prosecution satisfies criteria noted later in the memorandum.
Put simply, the DOJ will prioritize investigation and prosecutions involving defendants who cause (a) financial harms to digital asset investors and consumers and (b) use digital assets to further other crimes.
However, DOJ prosecutors can no longer charge “regulatory violation” involving digital assets unless there is evidence that defendants “knew of the licensing or registration requirement at issue and violated such a requirement wilfully.”
Prosecutors are also directed not to charge violations of the Securities Act of 1933, the Securities Exchange Act of 1934, the Commodity Exchange Act, or the implementation of regulations, at least if alternative charges are available.
Narrowing of the DOJ’s Enforcement Policy
The Deputy AG describes a “narrowing” of the DOJ’s enforcement policy relating to digital assets. Consistent with its reduced role, the memorandum directs the Market Integrity and Major Frauds (MIMF) Unit in the Criminal Division’s Fraud Section to cease crypto enforcement. The memorandum also requires disbanding the National Cryptocurrency Enforcement Team (NCET).
While the memorandum narrows the DOJ’s enforcement policy, it does, however, provide that the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) continue providing guidance and training to DOJ personnel and act as liaisons to the digital assets industry.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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