NCET cracks down on illicit activities in cryptocurrency market

Multiple news outlets have reported that the US Department of Justice (DOJ) is increasing its efforts to combat illicit activities and criminal behaviour, such as money laundering, within cryptocurrency exchanges and platforms. To this end, the DOJ’s national cryptocurrency enforcement team (NCET) is focusing its attention not only on exchanges but also on crypto mixers and decentralised finance (DeFi) platforms that engage in unlawful acts.

NCET’s focus

The NCET’s focus on cryptocurrency-related crimes highlights the United States government’s efforts to regulate the cryptocurrency market. The NCET aims to prevent criminals from using digital assets to carry out illegal activities and to ensure the safety and fairness of the cryptocurrency market for investors. The increased efforts of the NCET and other regulatory bodies to combat cryptocurrency fraud and criminal activity indicate the growing importance of regulation in the cryptocurrency market.

They have a broad mandate, blurring lines between traditional white-collar and other federal crime and the emerging technologies associated with cryptocurrency and cyber-instrumentalities, neither of which are governed by clear, subject matter-specific statutes. The team aims to assist in tracing and recovering assets lost to fraud and other illegal activities.

Eun Young Choi, the newly appointed director of the cryptocurrency enforcement team, has vowed to crack down on illicit behaviour and to hold companies accountable for allowing or facilitating criminal activity on their platforms. In recent months, the US government has shut down nine exchanges suspected of money laundering.

For example, in May 2023, the US government, in collaboration with Ukrainian authorities, shut down nine cryptocurrency exchanges suspected of money laundering activities in recent months. The authorities shut down all servers of crypto exchanges 24xbtc.com and 100btc.pro, pridechange.com, 101crypta.com, uxbtc.com, trust-exchange.org, bitcoin24.exchange, paybtc.pro, and owl.gold.

Each platform offered users anonymous crypto transactions through voluntary registration programs violating several US laws. The exchanges were considered important hubs in the cybercrime ecosystem and were accused of violating US laws and having lax know-your-customer (KYC) controls.

It was also mentioned that the NCET Team wants to crack down on illicit investment scams such as the “pig butchering” scheme on crypto exchanges. This scam involves scammers playing the long game, “fattening up” potential victims to extract as much money as possible before the “slaughter”. The goal is not to extract money quickly, unlike other common scams. The term originated from a Chinese phrase with the same meaning.

They have also emphasized its partnerships with other federal agencies, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), in monitoring the cryptocurrency industry.

The government’s goal is to coordinate efforts and respect primacy among subject matter experts while unleashing US regulators to dig deeper into emerging markets and the technologies that support them. With the creation of the NCET, a rise in enforcement actions, and the end of the cryptocurrency “grace period,” stakeholders active in the cryptocurrency markets need to ensure their regulatory compliance.

A two-phase strategy for cryptocurrency regulation

Some experts believe that the US government’s actions signal a coordinated regulatory campaign to stymie the growth of the cryptocurrency industry. Personally, I do not think so. The regulation of cryptocurrencies requires a meticulously planned strategy that adapts to the ever-changing landscape of this digital realm.

To ensure its effectiveness, a two-phase approach should be followed. In the initial phase, the primary objective is to disrupt the flow of cryptocurrencies to illicit actors. This can be achieved by maintaining updated lists of sanctioned intermediaries and providing clear guidelines to individuals and businesses in the United States, helping them identify and avoid engaging with foreign companies under sanctions.

Furthermore, a comprehensive analysis should be conducted concurrently to evaluate the efficacy of these measures in combatting illicit financial activities associated with cryptocurrencies. This in-depth assessment would give regulators a deeper understanding of the outcomes of their actions.

By closely monitoring cryptocurrency intermediaries and rigorously evaluating the results, regulators can gather invaluable insights into the potential of cryptocurrencies as a legitimate instrument for promoting financial inclusion.

The findings and evaluations obtained in the initial phase will form the basis for the subsequent stage. If the analysis demonstrates a significant reduction in illegal cryptocurrency transactions due to effective law enforcement, it would create strong momentum for the government to proceed with the implementation of a Central Bank Digital Currency (CBDC).

This would indicate that the risks tied to illicit cryptocurrency activities can be adequately managed. However, if the measurements from the first phase reveal limited progress in addressing the criminal use of virtual currencies, it would underscore the government’s need to enhance enforcement mechanisms before considering the introduction of a CBDC.

It becomes crucial to prioritise efforts to target foreign exchanges and influential intermediaries through stringent sanctions, effectively combating theft, fraud, and extortion. Prudence dictates that new currencies should not be introduced hastily, and a comprehensive understanding of cryptocurrency dynamics must be achieved before any further steps are taken.

I think a well-executed phased approach to cryptocurrency regulation, supported by vigilant monitoring, thorough evaluation, and targeted enforcement measures, promises to provide valuable insights into the viability of cryptocurrencies for legitimate financial activities.

By diligently assessing the impact of regulatory efforts, policymakers can make informed decisions regarding the potential implementation of a CBDC, thereby ensuring effective control over illicit activities within the cryptocurrency ecosystem. Continual adaptation and improvement in response to the evolving challenges of this digital landscape are essential for fostering a safe and inclusive environment for cryptocurrency transactions.