For years, cryptocurrency has been seen as a safe haven for criminal gangs and enterprises looking to launder ill-gotten gains. Unlike a bank account, cryptocurrency doesn’t require a name attached to transactions, which are recorded on a public blockchain ledger. This apparent anonymity attracted criminal enterprises in the early days of cryptocurrencies like bitcoin. “You had the Silk Roads of the world and the AlphaBays,” says Jessie K. Liu, partner at law firm Skadden, Arps, Slate, Meagher & Flom. A former deputy general counsel at the US Treasury who also served in the Justice Department, Liu has prosecuted several crypto cases. “The early reporting on bitcoin made it out to be some sort of secretive, anonymous currency that bad guys used to do bad things.” The founding principles of the platform—and the libertarian, privacy-loving, decentralized attitude that gave birth to it—contributed to the perception that virtual currencies can’t be traced.
What all of those groups and individuals overlooked was that the underpinning of cryptocurrencies—the immutable blockchain that keeps a record of every transaction made—was building a stockpile of evidence for prosecutors. “The thing that’s so unique about crypto is you can actually trace and track the flow of these funds on an entirely open ledger,” says Redbord. “It’s only because crypto moves and lives on an open ledger on the blockchain that allowed for this type of investigation.”
In the opinion, Faruqui explains how the defendant’s identifying information and IP address were tracked and linked to the payments platform they operated. “The striking point is that cryptocurrency quickly became this dark asset used for illegal activity, which was never the purpose, and that is now being turned on its head and will just as quickly become more transparent than traditional asset classes,” says Nimesh Shah, CEO of London-based accountancy company Blick Rothenberg. Others go further: “Judge Faruqui’s opinion pours cold water on the idea that cryptocurrencies mean the death of sanctions,” says Anupam Chander, professor of law at Georgetown University in Washington, DC. Chander says the opinion is good for cryptocurrencies as they seek to shake off their early bad reputation and gain mainstream traction: “Judge Faruqui treats the virtual objects as if they are dollars or dinars.”
While the court’s opinion sets a legal precedent that crypto transactions can and should be traced by authorities, in other ways it’s wholly unremarkable. “Judge Faruqui is, as far as I’m aware, the first judge who has actually said explicitly that cryptocurrency can run afoul of sanctions,” says Liu. “But that’s been the Treasury Department’s view for a number of years.” What’s significant about the decision is that it codifies what has long been an informal attitude toward crypto.
“The question is no longer whether virtual currency is here to stay (i.e., FUD) but instead whether fiat currency regulations will keep pace with frictionless and transparent payments on the blockchain,” Faruqui writes. (Chander says that while Faruqui isn’t the first judge to use “FUD”—meaning fear, uncertainty, and doubt—in a federal opinion, he may well be the first to use it without defining it, showing just how much crypto has burrowed its way into the mainstream.)
