Briefing
The Department of Justice issued a decisive “Ending Regulation By Prosecution” Memorandum, immediately altering the risk landscape by directing federal prosecutors to deprioritize enforcement actions that impose regulatory frameworks on digital asset firms. This action fundamentally shifts the compliance burden away from litigating ambiguous asset classification and toward strict accountability for intentional financial crimes. The most critical change is the directive to refrain from charging regulatory violations → including unregistered securities or unlicensed money transmission → unless there is evidence the defendant knew of the requirement and willfully violated it.
Context
Prior to this memorandum, the digital asset industry operated under a prevailing compliance challenge rooted in “regulation by prosecution,” where the DOJ and other agencies initiated criminal enforcement actions based on novel interpretations of existing statutes like the Securities Act. This created a climate of legal uncertainty, forcing firms to litigate the fundamental classification of their assets (security versus commodity) in a criminal context, thereby using the punitive power of the state to establish regulatory policy. The lack of clear statutory definitions meant that good-faith compliance errors risked being treated as criminal offenses.
Analysis
This policy memo directly alters a regulated entity’s risk management architecture by establishing a higher mens rea (intent) standard for criminal regulatory charges. The shift means that resources can be reallocated from defensive legal posturing over asset classification to robust, proactive controls against actual fraud and illicit finance. Compliance teams must now focus on demonstrating a clear, documented, and good-faith effort to comply with existing rules, as this evidence will be critical to negate the “willfulness” standard in any potential prosecution. The cause-and-effect chain is clear → reduced criminal exposure for good-faith compliance missteps enables greater operational certainty for platforms.
Parameters
- Willful Violation Standard → The threshold prosecutors must meet to charge regulatory violations (e.g. unlicensed money transmission) in the digital asset space.
- Key Organizational Change → National Cryptocurrency Enforcement Team (NCET) Disbanded → The specialized unit within the DOJ’s Criminal Division dedicated to crypto enforcement was dissolved under this policy.
- Date of Memorandum → April 7, 2025 → The date the Deputy Attorney General’s memorandum detailing the new enforcement policy was issued.
Outlook
This DOJ action sets a powerful precedent for other federal agencies by formally rejecting the use of criminal prosecution as a tool for regulatory policy development. The next phase will involve industry participants leveraging this clarity to push for formal, non-punitive rulemaking from the SEC and CFTC, which are now positioned as the primary regulators. The long-term effect is a more mature legal environment where criminal risk is tied to intent and harm (fraud, terrorism), accelerating institutional confidence and market stability.
Verdict
The Department of Justice’s formal rejection of regulation by prosecution is a landmark policy pivot that immediately de-risks the compliance environment for good-faith digital asset operations, mandating a renewed focus on robust anti-fraud controls.
