Although cryptocurrency can be used for positive purposes, its potential for misuse is apparent. Cryptocurrencies can be described as virtual currency that may be used to pay for goods or services. The lack of cryptocurrency regulation has created a sense of urgency on a global scale, specifically by the Financial Action Task Force. The types of potential abuse encompass different areas of criminal law. For instance, cryptocurrency inspires criminal activity related to tax evasion, money laundering, contraband transactions, and extortion. Moreover, regulators struggle with the ways to classify cryptocurrencies such as Bitcoin which raises the question: is a “virtual currency” a “security” for the purposes of securities regulation?
The Security Exchange Act of 1933 is aimed at protecting investors from fraud and abuse by requiring business entities to register with the Securities and Exchange Commission before soliciting money. Cryptocurrencies run afoul of this provision through the use of decentralized exchanges that make it increasingly difficult to track and monitor transactions. As a result, governments are now attempting to establish a global standard for analyzing these transactions.
However, all hope is not yet lost. Slowly but surely the SEC, FBI, and other government agencies are taking an aggressive approach to prosecuting people who misuse cryptocurrency. After pleading guilty to drug trafficking charges a Tennessee man who used cryptocurrency to purchase the drugs faces up to 40 years in federal prison. Others have used romance and deception to convince people to transfer money that was later converted into cryptocurrency. But cryptocrime isn’t just being committed at a low level; the sophistication of cryptocrime has no boundaries. In one instance, the FBI seized 91,000 Ether units from three alleged co-conspirators who were indicted for using the cryptocurrency Ether to commit multiple crimes as they built their startup company. The FBI seized more than $60 million dollars worth of Ether units at the time.
The SEC recently sued AriseBank and its co-founders for allegedly defrauding investors of approximately $4 million. AriseBank was intended to be a decentralized bank that would provide banking services supporting over 700 different currencies. AriseBank was never officially FDIC-insured and never registered AriseCoin ICO, its offering of securities, with the SEC. The co-founders of AriseBank were charged with violating multiple provisions of the U.S. federal securities laws. While one of the co-founders reportedly lives in Dubai, the FBI arrested the other co-founder, Jared Rice in Texas.
As government agencies continue to work together to deter and stop cryptocrime, we should expect to see more indictments in the near future. People who hide behind technology and use cryptocurrency to commit crimes should not get too comfortable because the United States government is catching up.