DoJ Ends ‘Regulation by Prosecution,’ Disbands National Cryptocurrency Enforcement Unit

The U.S. Department of Justice (DoJ) will no longer file enforcement by prosecution cases and has disbanded the National Cryptocurrency Enforcement Unit.

Those are just some of the changes to DoJ policy outlined in an April 7 internal memo titled “Ending Regulation by Prosecution.”

The policy memo from Deputy Attorney General Todd Blanche was posted by the DeFi Education Fund on April 8, a day after it was distributed. It outlines the changes to department policy on digital assets imposed by the new administration.

“The memo makes it clear the DOJ is not a regulator,” said Amanda Tuminelli, executive director and chief legal officer of the DeFi Education Fund. “Obvious point, you wouldn't have known it over the past few years. The vibes here are very good. Prosecution by regulation is over.”

Key Changes

Among the key actions of the memo is to immediately disband the National Cryptocurrency Enforcement Unit. It was “the team most responsible for opening investigations into digital asset projects simply for being associated on digital assets,” Tuminelli said.

Another is a directive not to go after virtual exchanges, mixing and tumbling services, and offline wallets as a result of end users’ actions. It will not charge what Tuminelli calls “pure registration cases,” meaning violations of securities or commodities laws where the only allegation is violating registration requirements.

Nor will it pursue regulatory violations of the Bank Secrecy Act, unlicensed money transmitting, unregistered securities offerings violations, unregistered broker-dealer violations, and other violations of the Commodity Exchange Act “unless there is evidence that the defendant knew of the licensing or registration requirements at issue and violated such a requirement willfully.”

The DoJ will focus its efforts on individuals involved in victimizing investors, as well as drug cartels, human traffickers, terrorist organizations and nations like North Korea that are the target of U.S. sanctions.

“It is not open season, and the industry should not take it that way,” Tuminelli warned.

Compensating victims with crypto instead of cash

Touching on a sore spot among the victims of crypto hacks, scams and thefts, the memo says that while in some cases, prosecutors have been able to get digital assets forfeited long after the crime, current regulations mandate that they be compensated using the cash value of the assets when they were lost. However, many of these seizures occur years after the crime.

The effect of this is that “digital assets investors’ losses may be calculated at a value when the digital asset market was at a lower point, and victims who bore the risk of loss are unable to benefit from corresponding gains that occurred during or after the period in which they were victimized.”

The Department has been ordered to look at addressing those concerns through regulation. This likely means victims could be compensated in the crypto they lost or what it can be sold for at fair market value.