Justice Department Launches First-Ever Criminal Case Involving Crypto to Skirt US Sanctions

It hasn't been a good few weeks for the cryptocurrency world, and it seems things are only getting worse as the Justice Department lodges a full criminal prosecution against an American for utilizing $10 million worth in crypto to evade US economic sanctions. The nine-page complaint headed by US Magistrate Judge Zia Faruqui posits that the millions in Bitcoin were used illegally by transmission to sanctioned countries, such as Syria, Russia, North Korea, Iran, and Cuba.

Faruqui disclosed various concerns surrounding digital currencies, weighing in on concepts like the prevailing theory surrounding its anonymity in use, as well as their ultimate standing in regards to legal action. He cites a newly-inducted action filed under the Treasury Department's Office of Foreign Assets Control, allowing judges to make their own observations and complaints regarding virtual currencies and US sanctions.

"Issue One: virtual currency is untraceable? WRONG...Issue Two: sanctions do not apply to virtual currency? WRONG," writes Faruqui. "The Department of Justice can and will criminally prosecute individuals and entities for failure to comply with OFAC's regulations, including as to virtual currency."

New guidance was adopted in October 2021 surrounding the application of regulations and sanctions in targeting digital assets and currencies, allowing investigators and litigators alike to charge necessary criminal offenses as they would with traditional fiat currencies and the US dollar. Given that the investigation is still ongoing, much of the information surrounding the case still remains sealed, like the defendant's identification and assorted witnesses.

Various newly devised lawmaker procedures have blossomed in the wake of the ever-burgeoning rise of bitcoin and cryptocurrency. While the law isn't up to par just yet in stifling bad actors across the board, mainly wire fraud and money laundering, new implementations have allowed lawmakers to look into crypto more profoundly.

Following the Russian invasion of Ukraine, Attorney General Merrick Garland took up a law enforcement task force in the specific nature of targeting cryptocurrency use cases in the evasion of US sanctions. Earlier this month, the Treasury Department hit back against a cryptocurrency tumbler (or simply platform) that was allegedly utilized in skirting funds for the Lazarus hacker group.

"What we are seeing is that the Department of Justice is going to actively go after actors that attempt to use cryptocurrency, but also that it is hard to use cryptocurrency to evade sanctions. It shows, in many respects, cryptocurrency is not a good tool for sanctions evasion or money laundering," explains Ari Redboard, ex-senior advisor to the Treasury Department's undersecretary for terrorism and financial intelligence.

Friday's ruling, he claims, is additional and certain proof that cryptocurrencies can, in fact, be traced and are "immutable - in other words, transactions using cryptocurrency are forever," which is true thanks to their inherent blockchain technology. The charges were first struck in March when authorities discovered the unnamed defendant assisted a sanctioned country in building a payment platform akin to PayPal.

Authorities were able to trace these actions through blockchain forensics, as much of the data stream can be followed through sophisticated ledgers and other public white papers. According to the US law enforcement affidavit, the $10 million in bitcoin was transmitted through this PayPal system, originating from the US, which allowed law enforcement to track the assets. This PayPal platform advertised itself as a means of evading US sanctions utilizing bitcoin, thus giving US lawmakers added ammunition to target the scheme.

From there, the lawmakers took up synthesized subpoenas on returns from the US crypto trading platform. The exchange of choice (such as Coinbase or Binance) utilized by the defendant remains classified. Authorities were also able to discover all traditional US financial institutions and banking information used by the culprit in question, later utilizing email search warrant returns and even a shell company registration to track the defendant via various domains and US financial accounts.

Faraqui sees the case as a simple slam dunk given probable cause in the defendant's transmission of cryptocurrency and aid to sanctioned countries outside US reach. No matter the ruling, the defendant already is facing a mountain of legal trouble from liability concerns in utilizing two crypto exchanges for said nefarious transactions.