Briefing
The U.S. Department of Justice has fundamentally recalibrated its approach to digital asset enforcement by issuing a memorandum that ends the practice of “regulation by prosecution”. This policy shift immediately alters the compliance risk landscape, moving the primary threat vector for digital asset platforms from criminal charges for unwitting regulatory violations (e.g. unregistered securities or money transmission) to willful criminal conduct, specifically prioritizing fraud, money laundering, and terrorism financing. Crucially, the memorandum instructs prosecutors to refrain from charging regulatory violations unless there is evidence the defendant knew of the requirement and willfully violated it.
Context
Prior to this action, the digital asset industry operated under a cloud of systemic legal uncertainty, where federal prosecutors often utilized criminal statutes to enforce technical regulatory requirements, such as the Bank Secrecy Act (BSA) or registration mandates under the Securities and Exchange Acts, even in the absence of clear investor harm or willful intent. This “regulation by prosecution” approach created a high-risk environment for platforms, forcing them to navigate conflicting interpretations of decades-old laws without clear statutory guidance, a challenge compounded by the lack of a unified regulatory framework.
Analysis
This policy directly alters the internal compliance framework design for regulated entities, shifting the emphasis from defensive litigation preparation against technical violations to robust, demonstrably effective anti-fraud and illicit finance controls. For platforms, the risk is now concentrated on the willful failure to implement adequate AML/KYC protocols, a factor that leaves a viable pathway for continued enforcement risk via FinCEN’s longstanding guidance on Money Services Businesses (MSBs). The dissolution of the National Cryptocurrency Enforcement Team signals a strategic redistribution of resources away from broad-scope regulatory investigations toward targeted, high-impact criminal cases involving financial harm. This change provides a measure of operational clarity by establishing a higher bar of criminal intent for non-fraud regulatory charges.
Parameters
- Issuance Date → April 7, 2025 → The date the Deputy Attorney General’s memorandum was issued.
- Prosecutorial Standard → Willful Violation → The required mental state (scienter) for prosecutors to pursue criminal charges for regulatory non-compliance.
- DOJ Unit Change → National Cryptocurrency Enforcement Team Disbanded → The unit previously dedicated to cryptocurrency enforcement is dissolved, and the Market Integrity Unit is directed to cease crypto enforcement.
Outlook
The DOJ’s clear demarcation between criminal enforcement and regulatory oversight sets a significant precedent, potentially influencing other federal agencies like the CFTC, whose acting chairman has already directed staff to comply with the new policy’s spirit. The next phase will involve legislative and regulatory changes, as the guidance explicitly directs the DOJ to evaluate and propose reforms to asset forfeiture rules to allow victims to recover post-fraud gains from digital asset value appreciation. This policy is a strong signal of the administration’s intent to foster innovation by reducing regulatory risk while simultaneously hardening the defense against egregious criminal activity.
Verdict
The Department of Justice policy establishes a higher criminal intent standard for regulatory charges, fundamentally de-risking the operational environment for digital asset platforms that prioritize rigorous, demonstrable anti-fraud and illicit finance compliance.
