Comment by: Will Roth of Genny Ngai and Morrison Cohen LLP
Since taking office, the Trump administration has designated several drug and violent cartels as Foreign Terror Groups (FTOS) and specially designated Global Terrorists (SDGTS). US President Donald Trump also called for the “complete elimination” of these cartels, etc. These execution instructions are not a good development for the cryptocurrency industry. In their faces, these missions seem to focus only on the crime cartel. There is no doubt that these implementation actions will cause unforeseen collateral damage to the digital asset community. Crypto actors, including software developers and investors, are likely to be attracted by radical counter-terrorism prosecutions and subsequent civil litigation.
Threats to criminal counterterrorism investigations increase
The biggest threat posed by Trump’s executive order to the cartel is the Department of Justice (DOJ). After President Trump called for the cartel to be called a terrorist, the Justice Department almost immediately issued a memorandum directing federal prosecutors to use “the most serious and widespread allegations”, including counter-terrorism charges, against cartels and transnational criminal organizations.
This is a new serious development for prosecutors. Now that the cartel is designated as a terrorist organization, prosecutors can go beyond traditional drug and money laundering regulations and rely on criminal counter-terrorism regulations such as 1839b (the material-backed regulations) to investigate the cartel and anyone they believe “intentionally support or resources for the designated truck.”
Why should the crypto industry pay attention to these developments? Because “material support or resources” are not limited to providing physical weapons to terrorists. “Material support or resource” is generally defined as “any property, tangible or intangible or service”. Anyone who is willing to provide value for a designated cartel can now imagine that it violates §2339b.
Although cryptocurrency platforms are not financial institutions and are not custody of user assets, active prosecutors may have a tough view that software developers who design crypto platforms and software developers who fund these protocols are providing terrorists with “material support or resources” and launching harmful investigations for them.
This is not an abstract possibility. The government has shown this willingness to take this positive stance on the cryptocurrency industry. For example, the Ministry of Justice Sued developers of blockchain-based software protocol tornado cash Allegations of money laundering and sanctions and allegations that they operate a large-scale money laundering business, the operation has produced at least $1 billion in criminal proceeds from cybercriminals, including approved North Korean hacker attack groups.
Recent: Crypto Crime May More than $51B in 2024, Much More than Reports: Chain Analysis
In addition, the government has argued that cartels use cryptocurrencies to launder money drugs and has brought on numerous cases accusing individuals of washing drug proceeds through cryptocurrencies on behalf of Mexican and Colombian drugs cartels through cryptocurrencies. TRM Labs, a blockchain intelligence company that helps detect Crypto Crimeand has even determined how the Sinaloa Drug Cartel (recently designated FTO/SDGT) uses cryptocurrency platforms to launder money.
The digital asset community is facing real risks here. Putting aside the reputational damage and costs of defending criminal counter-terrorism investigations, violations of Section 2339b impose a statutory maximum term (or life if death occurs) and a monetary fine. Counter-terrorism regulations also have an extraterritorial scope, so crypto companies outside the United States are not affected by investigations or prosecutions.
Civil counter-terrorism lawsuits will escalate
Under the Counter-Terrorism Act (ATA), calling the cartel FTOS/SDGTS will also increase the speed at which crypto companies are prosecuted. Under the leadership of the ATA, a private citizen or its representative, terrorists may be prosecuted, as well as anyone “by intentionally providing substantial assistance, or conspiring with those who commit such acts of international terrorism.”
The aggressive plaintiff’s lawyers have relied on the ATA to sue cryptocurrency companies in court. At the end of 2023, Binance and its founders expressed crimes against criminal charges Sued Binance and its founder ATAThe defendants alleged that they intentionally raised funds and traded illegal business for Hamas and other terrorist organizations to support terrorist activities, and handled nearly $60 million in crypto transactions for these terrorists. The defendant filed a motion to dismiss the complaint, which was partially approved and partially rejected. Currently, the District Court allows Ranaan plaintiff to oppose Binance with the theory of his help and performance. Crypto companies should expect to see drug cartels on the official terrorist list and should see more ATA lawsuits now.
Beware is the key
Crypto companies may think that Trump’s war against cartels has nothing to do with them. The reality, however, is that the impact of this war will be widespread and crypto companies may unconsciously attract the firefight. Now, it is not time for the digital asset community to relax internal compliance measures. With counter-terrorism regulations, cryptocurrency companies must ensure that all FTO/SDGT transactions are identified and blocked, new terrorist names are monitored, and new areas of geographic risk.
Opinion by: Genny Ngai and Will Roth of Morrison Cohen LLP.
This article is for general information purposes and is not intended to be considered legal or investment advice. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent Cointelegraph’s views and opinions.
