The DOJ Takes Aim at Privacy in New Crypto Framework
U.S. Attorney General William Barr’s Department of Justice (DOJ) believes cryptocurrencies pose an emerging challenge to law enforcement activities, according to a new publication filed Thursday.
The DOJ’s “Cryptocurrency: An Enforcement Framework” document, published by the Attorney General’s Cyber-Digital Task Force, outlines what cryptocurrencies are and their potential use cases, including sections on both legitimate and illicit uses (though the “legitimate uses” section was shorter and more skeptical). Crypto has been used to support terrorism, purchase illicit items, conduct blackmail and extortion, cryptojacking and launder funds, according to the document, and the DOJ has spent the last two years determining how best to address these issues.
“Those efforts are paying off,” wrote Sujit Raman, the task force’s chair, referencing recent cases against Telegram, Welcome to Video, sanctions designations and other efforts. And while the report was published by the DOJ, it encompasses efforts by all parts of the federal government, including civil regulatory agencies.
In a statement, Attorney General William Barr said, “Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society. Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.”
The report itself is split into three sections: an overview of the cryptocurrency space and its current illicit uses; the laws and regulatory agencies that oversee the space; and the current challenges and potential strategies to address them.
The report warns that cryptocurrencies are more difficult for investigators to learn about than previous tools for executing crimes, citing pump-and-dump schemes as one example.
Cryptocurrency is a technology that could fundamentally transform how human beings interact, and how we organize society. Ensuring that use of this technology is safe, and does not imperil our public safety or our national security, is vitally important to America and its allies.
Investigators must learn to use “specialized communications applications,” the report said. Further, the markets being used evolve rapidly, with the report pointing to how the initial coin offering boom has given way to decentralized finance markets. The fact that blockchains are borderless, allowing anyone from any part of the world to interact with the markets, “adds a further layer of complexity.”
“Finally, decentralized platforms, peer-to-peer exchangers, and anonymity-enhanced cryptocurrencies that use non-public or private blockchains all can further obscure financial transactions from legitimate scrutiny,” the report said.
Much of the first section of the report simply provides an overview of cryptocurrencies, blockchain, distributed ledgers more broadly and how they’ve been used over the past few years.
The report distinguishes between virtual currencies, which are a “digital representation of value,” and cryptocurrencies, which it describes as being in a subset of virtual currencies that are decentralized and based on blockchains.
It goes on to explain addresses, wallets, miners and other aspects, noting that while some transactions are private and easy to query on the blockchain, some cryptocurrencies emphasize privacy (the DOJ does not appear to be a fan of these currencies).
“As discussed in Part I, a wide range of criminal activity may involve or be facilitated by the use of cryptocurrency. On numerous occasions, the Department of Justice has used available legal tools to pursue successful prosecutions of such activity,” the report said in the opening to its second section.
It summarizes the U.S. government’s actions over the past few years. In addition to criminal cases brought by the DOJ, civil cases brought by the Securities And Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) were highlighted, such as the SEC’s case against Telegram, which raised $1.7 billion in an initial coin offering but ultimately had to refund investors.
Agencies with oversight or enforcement power in the space include the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), the Office of the Comptroller of the Currency (OCC), the SEC, the CFTC and the Internal Revenue Service (IRS). The Financial Action Task Force (FATF), an intergovernmental organization that provides standards and recommendations for international money laundering rules, also received a mention.
It is the third section, “Ongoing Challenges and Future Strategies,” however, the DOJ noted that some exchanges and entities play “jurisdictional arbitrage,” looking for the friendliest jurisdiction to operate in. This can harm law enforcement agencies’ efforts to “investigate, prosecute and prevent criminal activity” that involves virtual assets, the report claimed.
“In the United States, AML/CFT standards have been in place for MSBs engaged in virtual asset activities since 2011, and yet many VASPs still are operating in ways that do not comply with the BSA and other regulatory requirements,” the report said.
This concern is exacerbated with companies that operate across different countries. A VASP might apply a different standard within the U.S. than it does outside it, or use different standards for crypto-to-fiat transactions compared to crypto-to-crypto transactions, the report claimed.
“Such behaviors are flatly inconsistent with VASPs’ BSA obligations and can create significant financial intelligence gaps,” it said.
The DOJ report also took particular aim at privacy coins, mixers, tumblers and other tools that are intended to conceal aspects of transactions.
Any website that offers mixing or tumbling services is “engaged in money transmission,” meaning it is subject to the Bank Secrecy Act. Websites that don’t follow the BSA or similar international regulations might face criminal prosecution, the report said.
As part of this section, the DOJ maintained its right and ability to prosecute violations conducted by entities based outside the U.S. should those entities still involve U.S. persons or services.
“The Department also has robust authority to prosecute VASPs and other entities and individuals that violate U.S. law even when they are not located inside the United States,” the report said. “Where virtual asset transactions touch financial, data storage, or other computer systems within the United States, the Department generally has jurisdiction to prosecute the actors who direct or conduct those transactions.”
While the DOJ most recently filed charges against BitMEX, it has in the past also gone after other non-U.S. based entities, such as 1broker.
The report similarly had an emphasis on national security concerns created by cryptocurrencies in its conclusion, saying rogue states and terrorists could take advantage of decentralized assets to undermine financial markets, avoid sanctions and fund harmful activities.
“As the use of cryptocurrency evolves and expands, so too will opportunities to commit crime and to do harm by exploiting cryptocurrency technology,” the report said. “Ultimately, illicit uses of cryptocurrency threaten not just public safety, but national security, as well … Current terrorist use of cryptocurrency may represent the first raindrops of an oncoming storm of expanded use that could challenge the ability of the United States and its allies to disrupt financial resources that would enable terrorist organizations to more successfully execute their deadly missions or to expand their influence.”
Current terrorist use of cryptocurrency may represent the first raindrops of an oncoming storm of expanded use that could challenge the ability of the United States and its allies to disrupt financial resources that would enable terrorist organizations to more successfully execute their deadly missions or to expand their influence.
A large part of the DOJ’s future efforts will depend on education around the cryptocurrency space, bringing regulators and government officials fully up to speed as the space evolves.
The report stressed that private stakeholders in the industry must work with regulators and elected officials.
Federal authorities must also work with state officials, the report said, to ensure de-confliction while conducting investigations.
“Indeed, for cryptocurrency to realize its truly transformative potential, it is imperative that these risks be addressed,” the report concluded.
- Bitcoin daily chart alert – Market is pausing for next bigger move – Oct.8
- YFI’s Andre Cronje disappeared after ‘death threats’. Will ‘love’ bring him back?
- Square buys $50 million in bitcoin, says cryptocurrency ‘aligns with company’s purpose’
- Reading Between the Lines of Brian Armstrong’s Mission Memo
Bitcoin daily chart alert – Market is pausing for next bigger move – Oct.8
(Kitco News) – Bitcoin-U.S. dollar prices are slightly down early Thursday. Bulls still have the slight near-term technical advantage, but need to show fresh power soon to keep it, as the market has paused and trading has been sideways and choppy. The next bigger daily price move is likely to be the direction of the next near-term trend in prices. Stay tuned!
YFI’s Andre Cronje disappeared after ‘death threats’. Will ‘love’ bring him back?
Yearn Finance (YFI) developer Andre Cronje has dropped out of public view after reportedly receiving ‘death threats’ from the decentralized finance (DeFi) community and becoming ‘demoralized’.
Cronje said he had received a variety of threats after investors raced into his unfinished and unreleased protocol, Eminence (EMN), which was then exploited and drained of $15 million in late September. The incident transpired while Cronje was sleeping, and he woke up to discover that half of the funds had mysteriously been sent to him by the hacker.
Cronje has not been active on social media since September 29, when he published his roadmap for refunding Eminence investors the $8 million. He noted criticism of the “public nature of this Twitter account and the public nature of my ETH address.”
As I am receiving a fair amount of threats, I have asked yearn treasury to assist with refunding the 8m the hacker sent. The multisig is safer and as such I feel more comfortable with them having the funds. Funds will be returned to holders pre-hack snapshot. https://t.co/wbputn5hYD
— Andre Cronje (@AndreCronjeTech) September 29, 2020
On October 9, fellow Yearn developer ‘banteg’ addressed Cronje’s silence, posting: “Andre said he won’t be Tweeting anymore. People got what they asked for.”
Speaking to Cointelegraph, banteg confirmed the threats Cronje had received were serious: “Andre has gone quiet because he has been receiving death threats.”
The developer noted that the actions of the DeFi community amid the Eminence fall out has had a significant impacted on how he views the community, stating:
“Crypto community at large has always been childish and irresponsible, which is the reverse of what Andre has been preaching. This witch hunt is something else, the last week has been very demoralizing.”
“I try to look through the noise and keep building, being around builders helps to level the energy sucked out by other people,” he added.
Cronje’s disappearance from social media has prompted the Yearn community to start a “Love Letters for Andre” thread to show their support for the developer. The thread has so far garnered more than two dozen posts in less than 24 hours. User ‘Wot Is Goin On’ wrote:
“We probably should be talking to our families but instead many of us are taking the time to write a message on a governance forum to a smart contract developer we’ve never met. There’s something special going on here and you kicked it all off.”
User ‘JarJar’ added: “This whole EMN thing was a blessing in disguise. Kill all the hype off, cleanse the community of some price obsessed degens and let the focus return to the building of products and long term community.”
YFI was one of the top-performing markets amid the Q 2020 DeFi bubble, with the token gaining more than 900% in the month of August alone to post an all-time high of more than $43,500 four weeks ago.
YFI has since shed two-thirds of its value, with the token consistently trending downward since the Eminence drama.
Square buys $50 million in bitcoin, says cryptocurrency ‘aligns with company’s purpose’
Omar Marques | LightRocket | Getty Images
Payment company Square is buying a large block of bitcoin, an unusual use of corporate cash.
Square said Thursday it bought 4,709 bitcoins, worth approximately $50 million. This represents about 1% of Square’s total assets as of the end of the second quarter of 2020.
“Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose,” the company said in a release.
“We believe that bitcoin has the potential to be a more ubiquitous currency in the future,” said Square’s Chief Financial Officer, Amrita Ahuja, in a release. “As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”
Square founder and CEO, Jack Dorsey, is a advocate of the digital currency, saying in 2018 the cryptocurrency will eventually become the world’s “single currency.” However the founder of Twitter said it could take a long as a decade.
Using it or another cryptocurrency as a global currency would lower the barrier for Dorsey’s payments company to enter new markets, he said in 2018.
Bitcoin has been marked by volatility in its 11-year existence. That and its high transaction costs have largely kept it from being used as an everyday payment method. Instead, it’s seen by some backers as a store of value, or “digital gold.” That global hedge use-case seemed unlikely in 2018 after it ended the year down more than 73%; however, some attribute its uptick in 2019 and 2020 to a hedge against the then U.S. China trade war and now coronavirus pandemic.
Square has enabled it clients to buy bitcoin on its Cash App since 2018.
Outspoken technology investor Chamath Palihapitiya told CNBC on Tuesday that Social Capital uses bitcoin as a 1% hedge in its portfolio.
“This is an instrument we use as a hedge,” Palihapitiya said. “I don’t think this is something that you trade and the more people obsess and focus, in my opinion at least, on what the price action is, the more that it will confound you, the more it will frustrate you. You buy it, you hold it, you put it away and you hope that you never need it,” he added.
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Author: Maggie Fitzgerald
Reading Between the Lines of Brian Armstrong’s Mission Memo
Last week, Brian Armstrong, the CEO of Coinbase, published a Medium post stating that the company would not engage in broad societal issues, would not take on activism, and would not be a forum for political debate and discourse. He said he published this memorandum in response to internal strife at the company. If Wired is to be believed or the original text of the memo is any indication, much of that strife has been related to Coinbase’s response, or lack of it, to the Black Lives Matter movement.
Reading between the many lines of PR-appropriate language, the message that Armstrong is sending is: if you want to push a progressive social agenda in the workplace, this is not the company for you. As the investor and writer Paul Graham said of the memo: “It is diplomatically phrased, but the underlying message, for those who grasp it, is anything but.”
So why such tortured – or rather diplomatic – phrasing? Why go to the length of openly publishing this company document, and even framing it as an example for other CEOs, only to couch the message in code? And what makes this supposedly neutral stance “anything but” diplomatic?
I believe that the indirectness of Armstrong’s memo speaks to the very issue that he is working to change within his company. Cancel culture and the performative wokeness pervasive to Silicon Valley have left little room for discussion around questions like where, when, and how social justice issues should be addressed. Fear of being cancelled has left many who don’t subscribe to the most liberal perspectives feeling forced to speak in dog whistles. Armstrong’s post is one such example.
What is performative wokeness? To be woke is to be cognizant of issues related to social justice. Performative wokeness is the act of signalling to the world how woke you are, regardless of your actual engagement in the issues.
Some instances of this, I would argue, are at worst harmless and at best effective in raising awareness. A company changing its logo to a rainbow during Pride month does not strike me as harmful, even if the move may ring hollow. A CEO stating publicly that “Black Lives Matter” may not be damaging but may turn out to be rather hypocritical depending on the company’s priorities and culture. Performative wokeness does more for performers than for the causes they are purporting to support, garnering them kudos from the community, while doing relatively little for the community for which they claim to advocate.
Indeed, many instances of performative wokeness actually backfire, harming the very causes for which the performer is advocating. This is where we get into censorship and cancel culture. Shaming others for their political views or demanding the dismissal of a colleague because of who they voted for might be on some level understandable given the emotional and divisive nature of many of the most salient issues today. But silencing and shaming are unpragmatic because they are more likely to further radicalize the other side and drive any chance at discourse underground.
With this context, one view of Armstrong’s post is that he is denouncing performative wokeness in the workplace in defence of tolerance, diversity of thought and free speech. That, however, is not the message I actually gleaned from his letter. His words do not champion open mindedness, civil engagement and respect for dissenting views and differing experiences. Rather, he instructs employees to leave political and social issues at the door and calls for the suppression of open discussion… all in the interest of focusing on the job at hand. He meets intolerance and silencing with further intolerance and silencing.
A couple of weeks ago, I wrote a piece predicting a future that looks remarkably like the present. In the world I describe, speech is not free, cancel culture is alive and well, and open discourse only takes place in private chats amongst the trusted and like-minded. Those who fall out of line are at risk of being fired from their jobs for their views. I could not have predicted that a week later, Coinbase would be all but asking employees to leave for being vocal about their social stances and political views.
Fear of being cancelled has left many who don’t subscribe to the most liberal perspectives feeling forced to speak in dog whistles.
There are many aspects of Armstrong’s memo that I find disconcerting. He talks about the workplace being a refuge from division and creating an environment in which employees can focus. He does not acknowledge that, for many, an environment in which they cannot discuss important issues or air their experiences is far from a refuge. He talks about bringing economic freedom to the world while seeming to avoid the inequalities in economic freedom in his own city, state, country. There are many dynamics that he glosses over.
But what troubles me the most is that, instead of creating space for productive pushback, for the discussion of nuance, and for diversity of opinion, he closes it off. This is worth noting and caring about because this pattern is playing out on a larger scale across Silicon Valley and across the country. The backlash against cancel culture is not manifesting as advocacy for dialogue, free speech, nuance and tolerance. Rather, the backlash is only driving discourse deeper underground, breeding an even more intense culture of fear, and further entrenching intolerance.
Over the long term, this type of backlash will only result in greater division. And the wound to heal will be even deeper the next time the fire around these issues ignites, whether that happens across the country or within a single company.