Three Things for Digital Assets Firms and Financial Institutions to Know
On April 7, Deputy Attorney General Todd Blanche issued a memorandum (the “Memo”) that significantly narrows the Department of Justice’s (“DOJ’s” or the “Department’s”) digital asset criminal enforcement priorities. The Department will move away from “regulation by prosecution” and focus on crimes by digital asset platform users, not the platforms themselves. Specifically, DOJ will prioritize prosecuting crimes that involve the use of digital assets to “victimize digital asset investors,” or further illicit conduct by cartels, Transnational Criminal Organizations, Foreign Terrorist Organizations, and Specially Designated Global Terrorists.
The Memo also (1) disbands the National Cryptocurrency Enforcement Team (“NCET”), a DOJ unit formed in 2022 to prosecute crypto-related conduct; (2) directs prosecutors not to litigate whether a digital asset is a “security” or “commodity”; and (3) directs DOJ offices to propose changes to improve the ability of digital asset investor victims to recover funds.
Here are three things for digital assets firms and financial institutions to know:
1. The Memo aligns with the administration’s priority to reduce enforcement of process-focused errors and substantially lowers criminal enforcement risk for digital assets firms with business models that may be subject to money transmitter licensing or registration requirements.
The Memo commits to end DOJ enforcement or litigation efforts “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 a marked shift from the previous administration, the Memo instructs prosecutors not to charge “regulatory violations” – unlicensed money transmitting, violations of the Bank Secrecy Act (“BSA”), or violations of registration requirements in federal securities and commodities laws – absent evidence that the defendant knew of the licensing or registration requirement and willfully violated it.
Digital asset firms with business models that may implicate licensing or registration regimes, including state-law money transmitter licensing obligations, now face greatly reduced criminal enforcement risk. Firms’ risk is reduced even further by the Memo’s statement that DOJ also generally will not target virtual currency exchanges, mixing and tumbling services, and offline wallets "for the acts of their end users.” Instead, the Memo directs prosecutors to focus on conduct by users that:
- causes financial harm to digital asset investors and consumers arising from embezzlement, misappropriation of customer funds, digital asset investment scams, and fake digital asset development schemes, or
- furthers other criminal conduct, like “fentanyl trafficking, terrorism, cartels, organized crime, and human trafficking and smuggling.”
DOJ’s pivot away from criminal sanctions for noncompliance with regulatory licensing, registration, or administrative reporting obligations is consistent with the administration’s criminal enforcement goals articulated in other contexts.[1]
2. At the same time, the Memo leaves meaningful flexibility for DOJ to bring charges on a case-by-case basis.
While the Memo significantly reduces criminal liability risks in important ways, crypto entities continue to face some risks.
“[C]riminal matters premised on regulatory violations resulting from diffuse decisions made at lower levels of digital asset companies” will no longer be pursued. At the same time, the Memo recognizes that drug cartels and international criminal and terrorist organizations “have increasingly turned to digital assets to fund their operations and launder the proceeds of their illicit businesses.”
Of note for digital asset firms, the Memo preserves the Department’s ability to prosecute willful failures to comply with money transmitter and other licensing and registration regimes, as well as instances of unlicensed money transmitting where the defendant knows the funds transmitted “have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.”
3. The Memo may also have implications for prosecutions of banks and other traditional financial institutions for AML compliance program deficiencies.
The Memo is specifically focused on digital assets, and it does not expressly address prosecutions of banks and other traditional financial institutions for analogous “regulatory violations” – for example, criminal prosecutions for violations of the BSA’s anti-money laundering program requirement. It also does not expressly address financial technology business models that do not involve digital assets.
It remains to be seen whether the administration’s focus on leaving regulatory enforcement to regulators not prosecutors will extend to traditional financial institutions and non-digital-asset-related BSA violations. But institutions may seek to rely on the broader position taken in the Memo that “the Department will pursue the illicit financing of [criminal and terrorist] enterprises by the individuals and enterprises themselves, including when it involves digital assets, but will not pursue actions against the platforms that these enterprises utilize to conduct their illegal activities.”
For more information about the Memo, please contact the members of Covington’s financial services and white collar practices.
[1] See, e.g., Memorandum from the Attorney General, General Policy Regarding Charging, Plea Negotiations, and Sentencing (Feb. 5, 2025), at 4 (limiting “[r]ecourse to criminal charges under the Foreign Agents Registration Act” and instructing the Counterintelligence and Export Control Section to otherwise “focus on civil enforcement, regulatory initiatives, and public guidance.”).
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