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The U.S. Department of Justice charged three North Korean computer programmers on February 17, 2021 with participating in a conspiracy to conduct cyberattacks in an effort to steal and extort over $1.3 billion in cryptocurrency and fiat. The wide-ranging indictment reveals efforts by members of North Korea’s Reconnaissance General Bureau to engage in cyberattacks against the entertainment industry, banks, and other financial institutions, including those in the cryptocurrency industry.  

Efforts to steal cryptocurrencies from exchanges via cyberattacks are not a new phenomenon (see Mt. Gox), particularly for those acting on behalf of sanctioned countries, such as North Korea. One particular, and possibly unprecedented, scheme in this particular indictment relates to the Marine Chain Token and Initial Coin Offering.  

Notably, the DOJ has alleged that the North Korean defendants developed and marketed in 2017 and 2018 the Marine Chain Token, which allowed investors to purchase fractional ownership interests in marine shipping vessels (such as cargo ships), supported by a blockchain. In marketing and promoting the ICO, the defendants obfuscated the fact that the ICO was for North Korean interests, and in practice, an effort to evade economic sanctions.  

 Even more striking: the defendants attempted to receive approval from Hong Kong’s Securities and Futures Commission to trade the Marine Chain Token as a security.  

LEGAL TOKENS

Sanctioned countries and other related actors have targeted cryptocurrency exchanges and other businesses via cyberattacks in an effort to extort and steal assets. That is not new. What is unprecedented is the effort by sanctioned countries and actors to raise funds using an ICO, and specifically, to seek regulatory approval for that ICO. This case demonstrates the risks inherent in certain fundraising efforts, including ICOs, and could lead investors to take additional steps when assessing whether to participate, including greater diligence of the sponsors.

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Andrew Jacobson | Associate

A former enforcement attorney at the New York State Department of Financial Services (DFS), Andrew Jacobson represents individual and institutional clients at Seward & Kissel in connection with complex governmental investigations, regulatory probes, and related civil matters. While at the DFS, Andrew was involved in early cryptocurrency issues and brought some of the most significant enforcement actions for violations of U.S. economic sanctions and anti-money laundering laws.

Andrew has extensive experience advising on matters relating to U.S. economic sanctions, including those administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and anti-money laundering laws. Andrew serves as Chair of the Export Controls, Sanctions, and Anti-Corruption Subcommittee of the International Bar Association, co-chair of the Virtual Commodity Association’s BSA/AML Committee, and is a member of the Digital Chamber of Commerce’s AML Task Force.

As a member of Seward & Kissel’s Blockchain and Cryptocurrency Group, Andrew regularly advises clients on all aspects of financial crimes compliance and licensing in the virtual asset industry, including:

  • OFAC and FinCEN regulatory requirements, including asset blocking and reporting obligations;

  • Unhosted wallets and risks to software providers and VASPs;

  • Privacy coins, mixers, and other external privacy mechanisms;

  • Technology and open-source user platforms;

  • Ransomware and other cyberattack-related ransom payments;

  • BitLicense and state licensing requirements; and

  • Counterparty due diligence and screening.

 

“This is certainly a lesson to senior management to take compliance seriously and that there are consequences for individuals who don’t follow the regulatory regime.”

Andrew’s thoughts on BitMEX indictment, as published in Law360 article “BitMEX Case Seen as Blessing in Disguise for Crypto Sector”