Enforcement Trends in Cryptocurrency Today

Latham & Watkins–the world’s largest law firm with approximately 2,000 attorneys in the United States, Europe, the Middle East and Asia–has recently released research results on today’s enforcement trends in cryptocurrency.

Since the beginning of 2015, an increasing number of government and law enforcement agencies including the Securities and Exchange Commission (SEC), the Department of Justice (DOJ), the Commodities Futures Trading Commission (CFTC), the Federal Trade Commission (FTC), and the Financial Crimes Enforcement Network (FinCEN) have attempted to regulate the circulation of Bitcoin and restrict the operations of cryptocurrency-related businesses and startups.

Lawmakers and enforcement agencies have become increasingly active in regulating cryptocurrencies, as established financial institutions, banks and tech conglomerates begin to invest and work with blockchain-focused startups to create decentralized financial systems–such as a cross-institutional banking and asset settlement platform–as an increasing number of criminals began to use bitcoin to extort money from businesses.

Just last month, the European Union hinted at the launch of an official investigation into Bitcoin and announced their plans to strengthen controls on virtual currencies and other digital funding methods. Their decision followed superficial research on the Islamic State of Iraq and the Levant’s alleged use of bitcoins to fund their devotees and militants internationally.

The European Union based their judgements on false claims released by major media outlets including Germany’s state broadcaster Deutsche Welle, which claimed that they have found evidence to link ISIS to Bitcoin.

“Thousands of dollars worth of Bitcoin has been sent to accounts purportedly affiliated with the ‘Islamic State,’ with one of the accounts registering its first transaction in 2012,” reported DW.

However, the statement was later proven to be false, and the EU hasn’t talked about regulatory policies surrounding Bitcoin and virtual currencies ever since.

Due to banks’ growing interest in digital currencies including Bitcoin, government agencies such as the US Attorney’s Office for the Northern District of California and the Internal Revenue Service’s Criminal Investigation Division (IRSCI) became involved with Bitcoin and blockchain companies, opening criminal investigations and civil enforcement actions against startups including Ripple Labs Inc. and XRP ll, LLC.

On May 5, 2015, the IRSCI and FinCEN opened a criminal investigation against Ripple Labs, claiming that the decentralized financial solutions provider violated requirements of the Bank Secrecy Act by acting as a money services business and selling its altcoins (XRP) without notifying the FinCEN. Ripple Labs was forced to pay a US$350,000 fine and spent around US$450,000 to settle criminal issues.

The involvement of government agencies and lawmakers in the evolution of Bitcoin as a technology has slowed down the growth of Bitcoin, and limits the potential of many blockchain-focused companies. However, as central banks and government organizations begin to recognize Bitcoin as an alternative reserve currency to major currencies such as the dollar and sterling pound, Bitcoin experts predict the development of a supportive and friendly environment for startups and businesses.

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