Trump's Focus on Cartels Highlights New Risks for Digital Assets
Since taking office, the Trump administration has taken significant steps to crack down on drug and violent cartels. The US President has designated several cartels as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs), with a goal of "total elimination" of these groups.
However, this increased focus on cartels poses unforeseen risks for the cryptocurrency industry. On their face, these executive directives appear to be targeted at criminal cartels. But make no mistake - these actions will cause collateral damage to the digital asset community.
A New Threat: Increased Anti-Terrorism Prosecutions
The biggest threat stemming from Trump's executive order on cartels is the Department of Justice (DOJ). Almost immediately after President Trump called for the designation of cartels as terrorists, the DOJ issued a memo directing federal prosecutors to use "the most serious and broad charges," including anti-terrorism charges.
This new development for prosecutors means that they can now go beyond traditional drug and money-laundering statutes and rely on criminal anti-terrorism statutes like 18 U.S.C. § 2339B - the material-support statute. This law makes it a crime to provide "material support or resources" to designated terrorist organizations, including those listed as cartels.
"Material support or resources" is broadly defined as "any property, tangible or intangible, or service." Anyone who knowingly provides anything of value to a designated cartel could now conceivably violate § 2339B. Even though cryptocurrency platforms are not financial institutions and never take custody of users' assets, aggressive prosecutors may take the hardline view that software developers who design crypto platforms - and those who fund these protocols - are providing "material support or resources" to terrorists.
A Growing Risk for Crypto Companies
The government has already demonstrated a willingness to take this aggressive position against the crypto industry. For example, the DOJ indicted the developers of the blockchain-based software protocol Tornado Cash on money laundering and sanction charges, accusing them of operating a large-scale money laundering operation that laundered at least $1 billion in criminal proceeds for cybercriminals.
Additionally, the government believes that cartels use cryptocurrency to launder drug proceeds and has brought numerous cases charging individuals for laundering drug proceeds through cryptocurrency on behalf of Mexican and Colombian drug cartels.
Risks and Consequences
The digital asset community faces real risks here. Violations of § 2339B impose a statutory maximum term of imprisonment of 20 years (or life if a death occurred) and monetary penalties. Anti-terrorism statutes also have extraterritorial reach, so crypto companies outside the US are not immune to investigation or prosecution.
Furthermore, the designation of cartels as FTOs/SDGTs will increase the rate at which crypto companies will be sued under the Anti-Terrorism Act (ATA). Aggressive plaintiffs' counsel have already relied on the ATA to sue cryptocurrency companies in court. For now, crypto companies should expect to see more ATA lawsuits now that drug cartels are on the official terrorist list.
Now is not the time for the digital asset community to relax internal compliance measures. Crypto companies must ensure that transactions with all FTOs/SDGTs are identified and blocked, monitor for new terrorist designations, and understand areas of new geographical risks.
Conclusion
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author's alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.