Crypto platforms are exempt from liability? Is Money Laundering Law Greenlight Crypto?

Words: JP Koning

Compile:Luffy，Foresight News

Recently, U.S. Deputy Attorney General Todd Blanche issued a memo to internal employees, saying that the crypto industry is "critical to the country's economic development." As a result, staff have been instructed not to target cryptocurrency platforms such as exchanges and mixers such as Tornado and ChipMixer for "end-user behavior".

What is the meaning of "end-user behavior"? This is explained further later in Blanche's memo. He specifically mentioned how drug cartels dealing in fentanyl often use cryptocurrencies, which is well known. For example, Tether is a popular payment method for fentanyl transactions. However, the Ministry of Justice went on to explain that while it will continue to pursue the financial crimes of drug trafficking groups, terrorist organizations and other illicit businesses, "it will not take action against the platforms used by these criminal groups to carry out illegal activities".

This is contrary to the financial laws that have long been established around the world. In traditional financial law, financial institutions are usually responsible for "end-user actions", and when criminals use them to "carry out illegal activities", financial institutions are held accountable, which is defined as money laundering in the law.

Money laundering is a two-way crime. On the one hand, there are criminals who have dirty money; On the other hand, there are the counterparties of criminals, i.e. financial intermediaries (banks, cryptocurrency exchanges, money transfer platforms) that deal with dirty money, both of which can be prosecuted. Last year, TD Bank was prosecuted for customers linked to drug cartels, and financial service providers are held accountable for crimes committed by users.

The same is true for sanctions evasion. One party is the sanctioned party and the other is a financial platform that facilitates its sanctions evasion, and both parties can be sued.

If, as Blanche suggests, crypto platforms are no longer the target of prosecution for "end-user conduct", this effectively means that the second part of money laundering or sanctions breaches is no longer considered a violation, at least when it comes to crypto platforms. So, if a drug cartel deposits dirty money on an exchange like Binance, the exchange will not be tracked down, but only the cartels.

In effect, crypto is the equivalent of being issued a privilege card that is "free from money laundering jail". It's not hard for onlookers to speculate that crypto platforms will relax their compliance measures as a result, as they won't be prosecuted, which in turn will allow more bad actors to take advantage of their services.

The memo provides more details. The ongoing Tornado and ChipMixer cases are likely to be dropped, as the memo makes it clear that the DOJ will no longer target coin mixing services. Tornado is a smart contract-based mixer with much of its infrastructure running through automated code, while first-generation mixers like ChipMixer are entirely human-operated. Users of ChipMixer are on the verge of disappearing due to a series of criminal convictions, but they will be re-energized as the threat of prosecution subsides.

The memo prohibits DOJ lawyers from targeting "offline wallets," which is likely to refer to "non-custodial wallets," presumably for stablecoins. Stablecoin users can either hold a stablecoin like USDT or USDC in a non-custodial form in their personal crypto wallets, or they can return it to the issuer to exchange it for actual US dollars, in which case the "custodial" form. This seems to mean that if a non-custodial stablecoin is used by a bad actor, the issuer itself will not be the target of prosecution. If it's encouraging fentanyl cartels to use stablecoins, that's a "brilliant" policy.

This decriminalization of cryptocurrency money laundering recognizes many of the ways in which the crypto ecosystem already operates. For example, just last week, I reported that stablecoin issuers like Tether and Circle are allowing sanctioned Russian exchange Garantex to hold their stablecoins. The issuer seems to believe that it is legitimate to provide access to illegitimate end users like Garantex. Now, the government seems to have confirmed their point by no longer targeting non-custodial wallets for "end-user behavior".

Now that we have explored some of the immediate legal and technical consequences of this decision, it is worth asking who would benefit from this sudden shift in policy? Because obviously most people are going to be worse off because of it.

The following is just my guess, and this policy may be designed to appease and reward the following categories of people:

Vote for Trump's liberals who bizarrely believe that money laundering should not be a crime.
Crypto entrepreneurs in San Francisco want to build a low-cost financial platform rather than afford to build an expensive compliance program to prevent criminals from using it. The entrepreneurs also want their crypto platforms to have access to bank accounts, while banks have been hesitant to do so due to the high risk of crypto money laundering. Now that cryptocurrencies have an exemption, banks don't have to worry. Crypto entrepreneurs who voted for Trump and funded him were an important part of his ruling team, and that was a reward for them.
Mr. Trump himself appears intent on creating a Putin-like bribery and asylum system that requires a money-laundering-friendly financial infrastructure, and the Justice Department's memo may be a precursor to creating such a system.

Banks and other traditional financial service providers may also benefit in the long run. With cryptocurrency-based financial activities now free from an important legal constraint, every crypto-friendly financial service provider will be incentivized. This means converting your U.S. dollar savings account at Wells Fargo to a blockchain-based U.S. dollar savings account. Doing so allows banks and fintechs to cut compliance costs and increase profits.

Once the entire financial industry has taken advantage of this loophole to complete the transformation, money laundering for criminals will no longer be a crime, and since the Department of Justice will no longer prosecute mixers, it means that all will gain complete anonymity.

As far as public welfare is concerned, this memo sucks. Like theft and fraud, money laundering is unethical and should be punished. Leaving one segment of society outside of any law erodes public trust in the government and the financial legal system.

More broadly, society's money-laundering laws are a critical line of defense against all kinds of other crimes. The existence of money-laundering laws has made it more difficult for the financial system to exclude so-called predicate offences such as robbery, human smuggling and corruption, which are so-called predicate offences of money-laundering. This deterrent effect has prevented many would-be criminals from disengaging from legitimate economic activities. Once these laws are repealed, the temptation to commit crime increases considerably.

This article is sourced from Foresight News:

https://foresightnews.pro/article/detail/82246

Respectfully submitted by the AIC Team

April23, 2025