Law Decoded: police and criminals on their screens, October 2-9

The Justice Department grabbed the headlines this week with its moves to expand its jurisdiction over cryptology and around the world.

Every Friday, Law Decoded offers an analysis of the week’s critical stories in the areas of policy, regulation and law.

Editor’s note

Historians often date the birth of the international police as we know it today to the 19th century, in response to the explosion of nationalist movements and non-governmental political radicalism in Europe. Just as new linking technologies such as the telegraph and the steam engine aided and abetted new networks of political deplorers and any number of Sherlock Holmes plots, the explosion in communications technology of the last quarter century has given rise to new forms of crime.

Which is, you know, something that everyone passively knows. In crypto space, the association with crime is a matter of family reputation that is present but certainly not unique. The new technology gives and takes away. Law enforcement interest in controlling the new networks is also growing. Paranational organizations such as drug cartels and terrorist cells come to mind.

This week the US Department of Justice (DOJ) filed criminal charges against ISIS agents who are behind the deaths of Americans, including James Foley, a move that expands their power to prosecute foreign agents as criminals under US law. The FBI also stopped a right-wing conspiracy to kidnap the governor of my home state of Michigan. With regard to crypto-money, several jurisdictions have claimed new authority, and the Department of Justice in particular took a number of steps to expand its jurisdiction.

The DOJ Vs all

The Department of Justice’s new „Cryptocurrency Enforcement Framework“ claimed a range of powers over cryptomoney companies that had previously been in limbo. Most notable is the generosity of what the Justice Department calls its own jurisdiction, basically anything that comes in contact with a server in the United States.

The new legal framework heralds a new era in the department’s authority over cryptomonies, but it is only the clearest summary of a growing body of precedent that US SEC and IRS regulators have been building over the years.

Last week’s criminal charges by the DOJ against the leaders of the Seychelles-registered exchange, BitMEX, somehow telegraphed their particular interest in fighting crime with crypto-currencies anywhere in the world. Most of the previous events of foreign prosecutions related to crypto currencies and Corona Millionaire had focused on networks that the Department considered to be primarily aimed at financing terrorism or channelling money to sanctioned individuals. While the DOJ accused BitMEX of being a vehicle for such action, the accusations against the leaders do not really accuse them of ideological or political illegality, but rather of old-fashioned greed.

Distressing to the cryptocommunity is, as always, the association with criminal activity. The Justice Department report talks about the ability of Blockchain technology to revolutionise payments, finance, international trade, shipping, trust, consensus and much more, I suppose this reader is familiar with the myriad of use cases, but the report compulsively turns to crime. From the point of view of the Department of Justice, that’s its job, so it makes sense, but it also adds to the unfair stigma against a technology.

Another concern is that technology experts in the United States can jump the barriers of any cryptology company, if given enough time and potential profits. So, as with the general trends over the past year, the US authorities appear to be building this legal framework to give themselves jurisdiction over cryptomoney basically everywhere. The Police of the World, in fact.

The UK is closing the door on a whole genre of investment in cryptology

The UK’s Financial Conduct Authority banned trading in cryptomone-based derivatives, including futures, options and swaps, for all retail investors from January.

While the FCA may not be as aggressive globally on crypto-currency as its colleagues in the US, London remains the financial centre of Europe. Like Brexit, the expected exodus from London has seen delays which seem to mock all bold predictions.

However, by focusing on retail investors, the FCA obviously designed its new ban to be more of a protective manoeuvre for ordinary Britons than a handicap for the current heavyweight champions of the London Stock Exchange.

However, as the UK’s position both within Europe and in the global economy is vulnerable, the implementation of a strict ban on a new asset class appears to be another way of challenging itself from the financial future. As I mentioned earlier, it is almost certain that determined UK crypto investors will be able to bypass this new ban to access foreign exchanges with less legal liability to the UK with more extravagant and risky leverage offers.

But perhaps a somewhat built-in assumption is that while the technological implementation of any ban will be slow and imperfect, a retail investor able to circumvent the ban is not exactly the person the FCA is seeking to protect.

The DOJ vs. the slippery Mr. McAfee

After decades of intercontinental scandals, John McAfee was arrested in Spain for tax evasion. He also faces an SEC lawsuit for fraudulent promotion of several ICOs.

McAfee first found success in the 1980s at the head of the company that produces the anti-virus software that still bears his name. He left the company in the 1990s and has been running around the world ever since, accumulating weapons, substance addictions, sexual assault charges and murder. He also allegedly does not pay his taxes. He has been residing in Cuba out of reach of US authorities for some time.

Despite his early successes in the field of technology, McAfee has for decades built a personal brand on infamy. SEC allegations suggest that he managed to translate that megaphone into millions of dollars by connecting to the curious exaggerated mechanics of the ICO boom. Earlier this year, he attempted to launch a privacy token that he admitted was largely taken from another project. McAfee is not what I would call a builder. While everyone is innocent until proven guilty, McAfee’s absence from the crypto scene would be a boon to the industry’s reputation.

Further reading

The Bank for International Settlements published a new comprehensive report on the risks and prospects associated with digital currencies issued by central banks.

Tax attorney Jason Freeman discusses the latest IRS memo on getting your virtual asset taxes in order.

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