Urgent Warning: Trump’s Cartel Crackdown Unleashes New Cryptocurrency Risks

Are you holding digital assets? President Trump’s intensified focus on cartels, designating them as terrorist organizations, might seem distant from the crypto world. But hold on, this aggressive stance is casting a long shadow, creating unforeseen cryptocurrency risks for everyone in the digital asset space, from software developers to investors. Let’s dive into how this political shift could drastically change the landscape for crypto.

Why Trump’s Cartel Focus is a Red Flag for Digital Assets

Initially, it seems like Trump’s directives are solely aimed at dismantling criminal cartels. However, the reality is far more nuanced and potentially threatening for the digital assets sector. These executive actions are not isolated events; they are setting the stage for aggressive legal interpretations that could ensnare crypto actors in their net. Think about it: software developers creating crypto platforms and investors funding these ventures could inadvertently find themselves in the crosshairs of anti-terrorism investigations and subsequent civil lawsuits. This isn’t just speculation; it’s a rapidly evolving legal landscape that demands immediate attention.

The Escalating Threat of Anti-Terrorism Investigations

The most immediate danger stems from the Department of Justice (DOJ). Fueled by President Trump’s declaration to treat cartels as terrorists, the DOJ has issued directives to federal prosecutors to leverage the “most serious and broad charges,” including anti-terrorism charges, against these organizations and related entities. This marks a significant escalation. Prosecutors are no longer limited to traditional drug and money-laundering statutes. They can now wield potent anti-terrorism statutes like 18 U.S.C. § 2339B – the material-support statute.

What is ‘Material Support’ and Why Should Crypto Care?

The definition of “material support or resources” is alarmingly broad. It’s not confined to weapons or physical aid. It encompasses “any property, tangible or intangible, or service.” This means anyone who knowingly provides anything of value to a designated cartel could potentially be in violation of § 2339B. Here’s where the cryptocurrency risks become starkly apparent:

• Software Developers: Even though crypto platforms often operate without custody of user assets, aggressive prosecutors might argue that developers designing these platforms are providing “material support” to terrorists by creating tools that could be used by cartels.
• Investors: Similarly, those who fund the development of these protocols could face scrutiny under the same “material support” umbrella.

This isn’t a hypothetical scenario. The DOJ has already demonstrated a willingness to adopt this aggressive stance. The indictment of Tornado Cash developers on money laundering and sanction charges serves as a chilling example. The government accused them of facilitating a massive money laundering operation, processing at least $1 billion in criminal proceeds, some linked to a sanctioned North Korean hacking group. This case highlights the government’s readiness to interpret “material support” broadly in the context of digital assets.

Real-World Examples: Cartels and Crypto

It’s no secret that cartels are leveraging cryptocurrency risks and opportunities for illicit activities. Authorities are aware and actively tracking these trends. Consider these points:

• Money Laundering: The government is convinced that cartels utilize cryptocurrency to launder drug proceeds. Numerous cases have already been brought against individuals for laundering money through crypto on behalf of Mexican and Colombian drug cartels.
• Sinaloa Cartel Example: TRM Labs, a blockchain intelligence firm, has identified how the Sinaloa drug cartel – now a designated Foreign Terrorist Organization/Specially Designated Global Terrorist (FTO/SDGT) – is using cryptocurrency platforms to launder drug money.

These examples underscore the very real and present cryptocurrency risks the digital asset community faces under this heightened scrutiny.

Civil Anti-Terrorism Lawsuits: A Growing Threat

Beyond criminal investigations, the designation of cartels as FTOs/SDGTs will likely fuel a surge in civil lawsuits against crypto companies under the Anti-Terrorism Act (ATA). The ATA allows private citizens to sue terrorists and those who “aid and abet” terrorist acts by knowingly providing substantial assistance.

Binance Case: A Precedent for ATA Lawsuits in Crypto

The lawsuit against Binance following its guilty plea to criminal charges offers a stark preview of what’s to come. Victims of the October 7 Hamas attack sued Binance under the ATA, alleging the exchange provided a “mechanism” for terrorist groups to raise funds and processed nearly $60 million in crypto transactions for them. While Binance sought to dismiss the case, the court allowed the aiding-and-abetting theory to proceed. This ruling signals a willingness by courts to consider crypto platforms liable under the ATA for facilitating terrorist financing.

Expect More ATA Lawsuits

With drug cartels now officially labeled as terrorist organizations, crypto companies should brace themselves for a wave of ATA lawsuits. Aggressive plaintiffs’ lawyers will undoubtedly seek to apply the same aiding-and-abetting theories used in the Binance case to crypto platforms allegedly used by cartels. The legal and financial ramifications of such lawsuits could be significant.

Navigating the New Landscape: Vigilance is Paramount

It’s easy for crypto companies to believe that Trump’s “war on cartels” is irrelevant to their operations. This is a dangerous misconception. The repercussions of this policy shift are far-reaching, and the crypto industry may inadvertently become collateral damage. Ignoring these cryptocurrency risks is no longer an option.

Actionable Steps for Crypto Companies

Now is the time for heightened vigilance and proactive compliance measures. Here are critical steps crypto companies must take:

• Enhanced Transaction Monitoring: Implement robust systems to identify and block transactions involving all FTOs/SDGTs.
• Stay Updated on Designations: Continuously monitor for new terrorist designations to ensure compliance.
• Geographical Risk Assessment: Thoroughly understand and assess areas of new geographical risks associated with cartel activities and their potential crypto usage.
• Strengthen Internal Compliance: Re-evaluate and strengthen internal compliance programs to mitigate risks associated with anti-terrorism statutes.

Conclusion: Embrace Vigilance in the Face of Evolving Cryptocurrency Risks

Trump’s focus on cartels as terrorist organizations has undeniably introduced a new layer of cryptocurrency risks to the digital asset industry. While the primary target is criminal cartels, the expansive reach of anti-terrorism laws means that crypto companies, developers, and investors are now operating in a more perilous legal environment. Complacency is not an option. Vigilance, proactive compliance, and a deep understanding of these evolving crypto regulation risks are now essential for survival and success in the digital asset space. The time to act is now, to safeguard your operations and navigate this challenging new terrain.

Opinion by: Genny Ngai and Will Roth of Morrison Cohen LLP. 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 Crypto News Insights.