Justice Department Scales Back Crypto Enforcement

By Dave MichaelsThe Justice Department is scaling back prosecutors' ability to bring criminal charges against cryptocurrency firms, in a move that could disrupt several ongoing cases and investigations.The department will no longer bring charges against exchanges, dealers, mixing services and wallet providers "for the acts of their end users," according to a memorandum issued late Monday by Deputy Attorney General Todd Blanche. Prosecutors have sometimes charged crypto startups whose services were used by money launderers or people in countries subject to U.S. sanctions such as Iran.The new policy underscores the Justice Department's move to align with President Trump's affinity for crypto products. Trump in January said his administration would support the growth of the crypto industry, which for years has clashed with regulators and prosecutors over its scanty compliance with investor-protection and illicit-finance rules.Now, prosecutors aren't allowed in most cases to charge violations of anti-money-laundering laws and other statutes that equate cryptocurrency products with securities or financial derivatives. Blanche's memo said that step is being taken "in recognition of" its view that enforcers during the Biden era subjected the industry to an unfair level of oversight.Roman Storm, a software developer who was charged in 2023, could benefit from the shift in policy. Prosecutors allege that Storm's cryptocurrency mixing service, Tornado Cash, allowed criminals, including a U.S.-sanctioned North Korean cybercrime organization, to launder more than $1 billion of illicit assets. Mixers obfuscate the movement of digital funds.Storm, whose trial is set for July, has said he is being unfairly targeted for how third parties used his service."We read this memo as supporting the dismissal of the case against Roman, " said Brian Klein, an attorney for Storm. "As we've said all along, it should never have been brought."Blanche's memo suggested that prosecutors shouldn't bring cases like the one against Storm. The department will run down individuals and enterprises that engage in illicit financing, the memo said, "but will not pursue actions against the platforms that these enterprises utilize to conduct their illegal activities."Prosecutors brought a number of other cases against major crypto firms over inadequate compliance with money-laundering laws. Binance, for example, pleaded guilty. The exchange's billionaire founder, Changpeng Zhao, also pleaded guilty and served four months in prison.Trump last month pardoned the founders of BitMEX, another exchange that was faulted for violating illicit-finance laws.The department plans to disband its national cryptocurrency enforcement team, which had been set up during the Biden years. Another specialized group based in Washington, the Market Integrity and Major Frauds unit, "shall cease cryptocurrency enforcement in order to focus on other priorities," the memo said.Prosecutors will still bring criminal charges against individuals who market digital-currency scams or steal assets belonging to other investors. They will also target cartels, transnational criminal gangs and terrorists that use crypto to carry out or cover up their crimes, Blanche wrote.Blanche was a federal prosecutor in New York and later defense attorney for Trump before his elevation to second-in-command at the Justice Department. According to a financial disclosure Blanche filed before taking office, he owned cryptocurrencies including bitcoin, Ethereum, solana, cardano and polygon. Most of his holdings were valued under $15,000, but he owned between $100,000 and $250,000 in bitcoin, according to his disclosure.In an ethics agreement, he pledged to sell his crypto holdings within 90 days of being confirmed by the Senate.The Securities and Exchange Commission also has shifted away from aggressive enforcement against the crypto market. It has dropped lawsuits against U.S. crypto exchanges that were aimed at making the markets comply with investor-protection laws. Those cases, against Coinbase and Kraken, were the cornerstone of an effort, mounted during the Biden administration, to regulate most cryptocurrencies as securities.Write to Dave Michaels at [email protected]