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On June 1, President Joe Biden announced the White House’s intention to evaluate the use of crypto in connection with ransomware payments made to cybercriminals. The White House plans to launch a strategic review to, in part, build an international coalition that holds countries who harbor ransomware actors accountable, as well as “expand cryptocurrency analysis to find and pursue criminal transactions.”

The Biden administration’s criminal crypto tracking efforts reached their fruition on June 7, when the Department of Justice released a statement that it seized 63.7 bitcoins valued at approximately $2.3 million paid to the ransomware extortionist group known as DarkSide. The seized funds are the proceeds of a recent ransomware attack against Colonial Pipeline that interfered with critical U.S. infrastructure. Remarkably, according to reports, the DOJ was not only able to track the bitcoin but also obtain the private key of the wallet that held the bitcoin in question. It remains to be seen whether the recovery of the Colonial Pipeline ransom was the result of a perfect storm of circumstances or whether U.S. enforcement agencies can repeat this feat.

According to Chainalysis, ransomware attacks are growing increasingly profitable for bad actors, with ransomware-linked addresses amassing $81 million in crypto so far this year. Recent notable attacks against Colonial Pipeline as well as JBS exemplify ransomware’s growing threat.

The trace and seizure of the ransom proceeds signify the White House’s recent movement to make ransomware a priority. The FBI plans to continue to use their available resources to trace illicit funds, disrupt ransomware attacks, and protect the private sector from malicious cyber actors.

LEGAL TOKENS

Although criminal activity accounts for less than 1% of all crypto transactions, crypto’s recent high-profile association with cyberattack ransom payouts subjects crypto to a stricter level of scrutiny from the government. This White House announcement and the FBI’s successful seizure of ransomware proceeds may signal a pattern in the Biden administration’s mission to expand on existing crypto regulation and enforcement.

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Anthony Tu-Sekine | Partner

As the head of Seward & Kissel’s Blockchain and Cryptocurrency Group and a frequent commentator on all things crypto, Anthony advises clients on a wide range of evolving topics, including how to structure and issue security and utility tokens, registered and unregistered offerings of security tokenstoken custody, transfer and liquidity issues, non-security opinions, and investments in crypto assets by funds and other investors. A recognized leader on physical precious metals funds, Anthony represented APMEX Inc. and alternative asset manager Sprott Inc. in connection with the launch of OneGold.com, which allows investors to own gold documented on blockchain.

You can work with regulators or you can really try to piss them off… If you really want to do the latter, then you should expect that they will bring every tool they have against you.

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