law enforcement

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.

Editor’s note

Historians typically date the birth of international policing as we know it today to the 1800s, a response to the explosion in nationalist movements and non-governmental political radicalism in Europe. Just as new linking technologies like the telegraph and the steam engine aided and abetted new networks of political deplorables and any number of Sherlock Holmes plots, the explosion of communications tech of the last quarter-century has brought about new forms of crime. 

Which is, y’know, something everyone passively knows. In crypto, association with crime is a familiar reputational issue that is present but certainly not unique. New technology giveth and taketh away. Law enforcement’s interest in controlling new networks also grows. Paranational organizations like drug cartels and terrorist cells come to mind.

This week saw the U.S. Department of Justice press criminal charges against ISIS agents behind American deaths including James Foley’s, a move that expands their power to prosecute foreign agents as criminals under U.S. law. The FBI also busted up a home-grown far-right conspiracy to kidnap the governor of my home state of Michigan. In crypto, several jurisdictions have laid claim to new authority, with the DoJ in particular making a number of moves to expand its jurisdiction.

DoJ vs. everybody

The Justice Department’s new “Cryptocurrency Enforcement Framework” laid claim to a whole host of powers over crypto businesses that had previously been in limbo. Most notable is the generosity of what the DoJ is calling its own jurisdiction — basically anything that touches a U.S. server.

The new framework heralds a new era in the department’s crypto authority, but it’s just the clearest summary of a growing body of precedent that U.S. regulators from the SEC to the IRS have been building out for years.

The DoJ’s criminal charges against Seychelles-registered BitMEX’s leadership last week in some ways telegraphed their particular interest in combatting crime in crypto wherever in the world it may be. Most earlier involvement in crypto-linked prosecutions abroad had been focused on networks the DoJ saw as being primarily designed to finance terrorism or funnel money to sanctioned individuals. While the DoJ accused BitMEX of being a means for such action, the allegations against the leadership are not really accusing them of ideological or political illegality, but rather old-fashioned greed.

Distressing for the crypto community is, as always, the association with criminal activity. The DoJ’s report pays lip service to blockchain technology’s ability to revolutionize payments, finance, international trade, shipping, trust, consensus et al — I assume that this readership is familiar with the myriad use cases — but the report pivots compulsively to crime. From the DoJ’s side of things, that is their trade, so it makes sense, but it also adds to the unfair stigma against a technology.

Another cause for concern is that tech-savvy people in the U.S. can get around the barriers by really any crypto company, given enough time and potential profit. So as with the general trends of the last year, U.S. authorities really do seem to be building out the legal framework to give themselves jurisdiction over crypto basically anywhere. World Police indeed.

UK shuts door on whole genre of crypto investment

The United Kingdom’s Financial Conduct Authority nixed trading of crypto-based derivatives — including futures, options and swaps — for all retail investors starting in January.

While the FCA may not be as globally hawkish on crypto as its U.S. analogues, London remains Europe’s financial center. Much like Brexit itself, the predicted exodus from London has seen delays that seem to mock all bold predictions.

With its focus on retail investors, however, the FCA has obviously designed its new ban to be more of a protective maneuver for regular Britons rather than a handicap on the reigning heavyweight champs of the London Stock Exchange.

Nonetheless, as the UK’s position within both Europe and the global economy is vulnerable, implementing a stringent ban on a new asset class seems like yet another way of recusing itself from the financial future. As mentioned earlier, determined UK crypto investors will almost certainly be able to get around the new ban to access offshore exchanges with less legal accountability to the UK and more extravagant and risky leveraged offerings. 

But maybe a somewhat built-in assumption is that, while the technological implementation of any ban is going to be slow and imperfect, a retail investor capable of working around it is not exactly the person the FCA is most worried about protecting.

DoJ vs. the elusive Mr. McAfee

After decades of intercontinental outrageousness, John McAfee was arrested in Spain for tax evasion. He also faces a suit from the SEC for fraudulent ICO promotion.

McAfee first found success in the 80s at the head of the firm that produces the antivirus software that still bears his name. He left the company in the 90s and has been bouncing around the world more or less ever since, racking up guns, substance addictions, and allegations of sexual assault and murder. Also not paying his taxes, allegedly. He was posted up in Cuba out of the reach of U.S. authorities for a while.

Despite his early successes in technology, McAfee has for decades built a personal brand on foundations of infamy. The SEC’s allegations suggest that he managed to translate that megaphone into millions of dollars by plugging into the curious hypedraulic mechanics of the ICO boom. Earlier this year, he tried to launch a privacy token that he admitted was largely taken from another project. McAfee is hardly what you would call a builder. While everyone is innocent until proven guilty, McAfee’s absence from the crypto scene would be a blessing for the industry’s reputation.

Further reads

The Bank for International Settlements put out a new and extensive report on Central Bank Digital Currencies and the associated risks and prospects.

Tax attorney Jason Freeman runs down the latest memorandum from the IRS on how to get your taxes on virtual assets in order.

Writing for the Electronic Frontier Foundation, Rainey Reitman talks problems with the extradition hearings for Wikileaks founder Julian Assange.

Law Decoded: Police and thieves on their screens, Oct 2–9

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