What is Cryptocurrency?
A cryptocurrency is a digital or virtual currency that cannot be copied and is very hard to fake. Cryptocurrencies are often decentralized networks based on blockchain technology—a distributed ledger enforced by many different computers.
Cryptocurrency is a form of digital money and only exists online. Bitcoin, Ethereum, and Tether are three common types of cryptocurrencies, but more are expected.
While similar to traditional bills and coins, cryptocurrency is usually used to make express payments without the standard legal protection of credit card transactions. Further, cryptocurrency can also be bought and sold as an investment.
Cryptocurrency is different from traditional currencies in many ways, such as not being federally insured like United States bank deposits. Also, the value of the cryptocurrency tends to be much more volatile than standard currencies, which makes the risk of fraud even greater.
This makes them difficult to control. Cryptocurrencies are digital assets that use a network spread across many different computers. This decentralized system allows them to exist outside the control of governments and central authorities.
Cryptocurrencies are not backed by anything, making it difficult to say their legal status in different countries. Cryptocurrencies have also been difficult to include in most of the world's financial systems. Because of this, cryptocurrencies have gone mainly unregulated, leading to their use for illegal purposes.
Bitcoin is the cryptocurrency most commonly used by someone to purchase or sell illegal drugs, weapons, and cybercrimes. As the popularity of cryptocurrency continues to rise, with more companies accepting it as payment, the dramatic rise of fraud reports has gotten the federal government's attention. The primary agencies that investigate cryptocurrency offenses include:
- Federal Bureau of Investigation (FBI),
- Federal Trade Commission (FTC),
- Commodity Futures Trading Commission (CFTC),
- Securities and Exchange Commission (SEC).
You can face federal criminal charges for various acts using cryptocurrency, so it is essential to speak to an experienced federal criminal defense attorney when facing criminal allegations related to cryptocurrency. Our federal criminal defense lawyers will review this further below.
What are Cryptocurrency Crimes?
Cryptocurrency crimes are criminal acts that involve cryptocurrency in some way. While there aren't many crypto-specific laws on the books, how cryptocurrency is used can lead to federal criminal charges if one is not careful. Some common federal crimes that involve cryptocurrency are discussed below.
Money Laundering – 18 U.S.C. § 1956 - Money laundering involves making money from illegal activities look like it is legal. This is often accomplished by hiding where the money came from, changing how the money looks on records or moving the money to a place no one notices. Since cryptocurrency is on an anonymous network, money laundering is common using cryptocurrency.
Securities Fraud - 18 U.S.C. § 1348 - Criminal allegations of federal securities fraud can be brought against individuals, corporations, securities brokers, and financial analysts. The federal securities statute is patterned after the mail fraud and wire fraud statutes.
It states that it is a federal crime to willfully defraud anyone in connection with security or commodity or acquire money or property from purchasing or selling a security using false or fraudulent pretenses, representations, or promises.
Wire fraud - 18 U.S.C. § 1343 – A federal prosecutor must show the defendant knowingly devised or participated in any illegal scheme to defraud using false pretenses, representations, or promises with the intent to defraud and communicated via wire, such as the internet or email.
Anyone convicted under 18 U.S.C. § 1343 wire fraud faces up to 20 years in prison and fines up to $250,000, but there are enhancements if the offense affects financial institutions.
Tax Evasion – 26 U.S.C. § 7201 - There are two main types of federal tax evasion:
- the intentional attempt to dodge the assessment of a tax by the government, and
- the intentional attempt to dodge the payment of a tax. Since cryptocurrency is on an anonymous network, people will try to evade tax liability by hiding money in cryptocurrency.
Drug Trafficking – 21 U.S.C. § 841 – This involves selling, transporting, or distributing controlled substances. Federal drug trafficking charges are authorized whenever alleged drug trafficking occurs across state lines. Cryptocurrency is commonly used as currency for illicit drug transactions.
Cryptocurrency Theft – 10 U.S.C. § 921 – Cryptocurrency is easy to steal because it exists in the digital space. Most cryptocurrency transactions are secure, but people can find a way around these systems if they are clever.
For example, they could use unauthorized mining, malware, or ransomware (locking up someone's computer and demanding payment in cryptocurrency to unlock it). If the government sees evidence that you may have participated in the unlawful gain of cryptocurrency, you could be charged with theft.
These are just some of the federal criminal offenses that can be charged with the use of cryptocurrency. Almost all money-related criminal acts can involve cryptocurrency in some way.
What are the Potential Penalties for Cryptocurrency Crimes?
The potential penalties for cryptocurrency crimes depend on which the government authorizes federal criminal offenses:
- A conviction for money laundering can result in up to 20 years in prison and a $500,000 fine;
- A federal criminal conviction for tax evasion can result in a five-year prison sentence, along with a fine of up to $100,000 for an individual and up to $500,000 for a company.'
- Drug trafficking can result in a life sentence if someone is said to have died due to the drugs someone has allegedly trafficked;
- The punishment for a theft/fraud conviction depends on the amount alleged stolen.
Crimes involving cryptocurrency can have severe punishments depending on the facts and circumstances.
What Are Some Potential Defenses?
For a prosecutor to secure a conviction for a crime related to cryptocurrency, it must be proven that the individual accused acted with intent and purpose. If someone accidentally took cryptocurrency or was not purposely trying to evade taxes, that lack of intent can be a potential defense.
An individual can be mistakenly charged for a criminal act involving cryptocurrency due to its anonymity. This mistake can be used as a potential defense against criminal charges.
Suppose the government violated an accused's Constitutional rights in investigating or obtaining evidence? In that case, that evidence can be suppressed from a case upon the filing and arguing a successful motion. These are some of the defenses that can be available to someone facing a criminal charge involving the use of cryptocurrency.
Eisner Gorin LLP is a top-rated criminal defense law firm in Los Angeles, California. We provide legal representation for people nationwide against all types of federal crimes. You can reach us for a case review via phone or contact form.