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On December 1, 2021, a federal grand jury in the Eastern District of Missouri indicted two Iranian nationals located abroad for conspiracy to commit wire fraud. The charges stem from the defendants’ scheme to hack the computers of a Missouri-based technology company for the purpose of using their power to mine for cryptocurrency – a practice commonly known as “cryptojacking.”

The indictment states that the Iranians sought to impersonate the company in order to build and install new computer servers via a cloud service for the purpose of mining cryptocurrency. The fraud was first discovered by the company when it received a $760,000 bill from the cloud service that had set up for the servers.

According to the Department of Justice, cryptojacking is “often accomplished through the use of malware or compromised websites, which cause the victim’s computer to run a crypto-mining code.” In order to combat cryptojacking, the DOJ recommends that companies and individuals establish two-step authentication, monitor log-in history, and audit cloud storage.

LEGAL TOKENS

This action demonstrates DOJ’s aggressive approach to combatting cyberattacks, particular where the virtual currency industry intersects with cybersecurity. While this case does not involve U.S. economic sanctions laws (the charges were wire fraud), it nonetheless represents the risks presented by cyberattacks that initiate from, or otherwise involve, actors located or resident in, or otherwise affiliated with, sanctioned countries such as Iran. As we have noted in the past, the U.S. government (including OFAC), have increasingly focused on ransom payments in connection with malicious cyber activities that originate from sanctioned jurisdictions or otherwise have a sanctions nexus.

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Author's Assets

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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”

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James Sunshine | Associate

James Sunshine is an associate in the Bankruptcy and Litigation Groups. He received a B.A., magna cum laude, from Emory University and a J.D. from University of Michigan Law School. James is also a contributor to Seward & Kissel’s Corporate Restructuring & Bankruptcy blog, Back in (the) Black.