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Data encryption a threat to fighting child sexual abuse, says DOJ

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The U.S. Department of Justice has released an international statement claiming that end-to-end encryption “poses significant challenges to public safety,” including sexually exploited children. 

In an Oct. 11 statement from the DoJ, the agency called on technology companies to work with the government to find a solution for strong data encryption with the means to allow the investigation of illegal activity and content. The department stated end-to-end encryption that hindered law enforcement from accessing certain content creates “severe risks to public safety.”

The statement was signed by the DoJ, the Home Department of the United Kingdom, the Australian Minister for Home Affairs, India, Japan, a New Zealand Member of Parliament and the Minister of Public Safety and Emergency Preparedness of Canada.

In particular, the DoJ stated such encryption — in which only the senders and receivers can access the data being sent — undermined law enforcement from “investigating serious crimes” and “protecting national security.” In addition, a tech company’s ability to identify and respond to child sexual exploitation and abuse, violent crime, and terrorist propaganda may be compromised, claimed the department.

Citing a 2019 report from the National Center for Missing and Exploited Children (NCMEC), the government agency implied end-to-end encryption needed to be implemented with a solution to safeguard children, or it would undermine the current system of reporting such exploitation.

“In 2018, Facebook Messenger was responsible for nearly 12 million of the 18.4 million worldwide reports of CSAM [child sexual abuse material to the NCMEC],” the DoJ said, citing a 2019 statement from the WePROTECT Global Alliance. “These reports risk disappearing if end-to-end encryption is implemented by default, since current tools used to detect CSAM do not work in end-to-end encrypted environments.”

Elected officials in the United States have already acted to seek a legislative solution to investigating the illicit activities to which the DoJ referred.

In June, three Republican senators put forth a bill that would outlaw end-to-end encryption for technology companies, requiring device manufacturers and service providers to assist law enforcement by providing access to encrypted data. The bill, named The Lawful Access to Encrypted Data Act, is currently under review in the Committee on the Judiciary. There is also the EARN IT Act, a proposed bill that would require digital messages to first pass through government-approved scanning software in order to monitor for malicious criminal activity.

Proponents of both bills have claimed their purpose would include protecting children from sexual abuse. However, many privacy advocates have heavily criticized the bills’ sponsors for what they perceive as the government encroaching on personal freedoms.

Though its statement focused on end-to-end encryption, the DoJ stated it would extend its efforts to “device encryption, custom encrypted applications and encryption across integrated platforms.” The government agency claimed it would hold a “respect for privacy” at the forefront of any legal framework.

“We challenge the assertion that public safety cannot be protected without compromising privacy or cyber security,” the DoJ stated.

Data encryption a threat to fighting child sexual abuse, says DOJ

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Law Decoded: Police and thieves on their screens, Oct 2–9

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Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.

Editor’s note

Historians typically date the birth of international policing as we know it today to the 1800s, a response to the explosion in nationalist movements and non-governmental political radicalism in Europe. Just as new linking technologies like the telegraph and the steam engine aided and abetted new networks of political deplorables and any number of Sherlock Holmes plots, the explosion of communications tech of the last quarter-century has brought about new forms of crime. 

Which is, y’know, something everyone passively knows. In crypto, association with crime is a familiar reputational issue that is present but certainly not unique. New technology giveth and taketh away. Law enforcement’s interest in controlling new networks also grows. Paranational organizations like drug cartels and terrorist cells come to mind.

This week saw the U.S. Department of Justice press criminal charges against ISIS agents behind American deaths including James Foley’s, a move that expands their power to prosecute foreign agents as criminals under U.S. law. The FBI also busted up a home-grown far-right conspiracy to kidnap the governor of my home state of Michigan. In crypto, several jurisdictions have laid claim to new authority, with the DoJ in particular making a number of moves to expand its jurisdiction.

DoJ vs. everybody

The Justice Department’s new “Cryptocurrency Enforcement Framework” laid claim to a whole host of powers over crypto businesses that had previously been in limbo. Most notable is the generosity of what the DoJ is calling its own jurisdiction — basically anything that touches a U.S. server.

The new framework heralds a new era in the department’s crypto authority, but it’s just the clearest summary of a growing body of precedent that U.S. regulators from the SEC to the IRS have been building out for years.

The DoJ’s criminal charges against Seychelles-registered BitMEX’s leadership last week in some ways telegraphed their particular interest in combatting crime in crypto wherever in the world it may be. Most earlier involvement in crypto-linked prosecutions abroad had been focused on networks the DoJ saw as being primarily designed to finance terrorism or funnel money to sanctioned individuals. While the DoJ accused BitMEX of being a means for such action, the allegations against the leadership are not really accusing them of ideological or political illegality, but rather old-fashioned greed.

Distressing for the crypto community is, as always, the association with criminal activity. The DoJ’s report pays lip service to blockchain technology’s ability to revolutionize payments, finance, international trade, shipping, trust, consensus et al — I assume that this readership is familiar with the myriad use cases — but the report pivots compulsively to crime. From the DoJ’s side of things, that is their trade, so it makes sense, but it also adds to the unfair stigma against a technology.

Another cause for concern is that tech-savvy people in the U.S. can get around the barriers by really any crypto company, given enough time and potential profit. So as with the general trends of the last year, U.S. authorities really do seem to be building out the legal framework to give themselves jurisdiction over crypto basically anywhere. World Police indeed.

UK shuts door on whole genre of crypto investment

The United Kingdom’s Financial Conduct Authority nixed trading of crypto-based derivatives — including futures, options and swaps — for all retail investors starting in January.

While the FCA may not be as globally hawkish on crypto as its U.S. analogues, London remains Europe’s financial center. Much like Brexit itself, the predicted exodus from London has seen delays that seem to mock all bold predictions.

With its focus on retail investors, however, the FCA has obviously designed its new ban to be more of a protective maneuver for regular Britons rather than a handicap on the reigning heavyweight champs of the London Stock Exchange.

Nonetheless, as the UK’s position within both Europe and the global economy is vulnerable, implementing a stringent ban on a new asset class seems like yet another way of recusing itself from the financial future. As mentioned earlier, determined UK crypto investors will almost certainly be able to get around the new ban to access offshore exchanges with less legal accountability to the UK and more extravagant and risky leveraged offerings. 

But maybe a somewhat built-in assumption is that, while the technological implementation of any ban is going to be slow and imperfect, a retail investor capable of working around it is not exactly the person the FCA is most worried about protecting.

DoJ vs. the elusive Mr. McAfee

After decades of intercontinental outrageousness, John McAfee was arrested in Spain for tax evasion. He also faces a suit from the SEC for fraudulent ICO promotion.

McAfee first found success in the 80s at the head of the firm that produces the antivirus software that still bears his name. He left the company in the 90s and has been bouncing around the world more or less ever since, racking up guns, substance addictions, and allegations of sexual assault and murder. Also not paying his taxes, allegedly. He was posted up in Cuba out of the reach of U.S. authorities for a while.

Despite his early successes in technology, McAfee has for decades built a personal brand on foundations of infamy. The SEC’s allegations suggest that he managed to translate that megaphone into millions of dollars by plugging into the curious hypedraulic mechanics of the ICO boom. Earlier this year, he tried to launch a privacy token that he admitted was largely taken from another project. McAfee is hardly what you would call a builder. While everyone is innocent until proven guilty, McAfee’s absence from the crypto scene would be a blessing for the industry’s reputation.

Further reads

The Bank for International Settlements put out a new and extensive report on Central Bank Digital Currencies and the associated risks and prospects.

Tax attorney Jason Freeman runs down the latest memorandum from the IRS on how to get your taxes on virtual assets in order.

Writing for the Electronic Frontier Foundation, Rainey Reitman talks problems with the extradition hearings for Wikileaks founder Julian Assange.

Law Decoded: Police and thieves on their screens, Oct 2–9

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DoJ Charges Bitcoin Exchange Boss Facilitating Money Laundering Scheme

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U.S authorities have apprehended and charged the head of a local cryptocurrency exchange platform after he was discovered to have facilitated an international money laundering scheme. According to a press release from the Department of Justice (DoJ), Rossen Iossifov, the head of Bulgarian crypto exchange RG Coins, was convicted recently of helping the operators of a fraud scheme move their funds through his exchange.

Working as the Enabler

The release explained that Iossifov had been involved with a criminal group, which posted ads on auction sites like Craigslist and eBay for non-existent high-value vehicles and other goods. The scammers would provide fraudulent documents and invoices, including the trademarks of reputable companies, to feign legitimacy. They even had support staff and call centers to keep their customers placated. 

Once they got paid for the products, they would transfer their cash to Iossifov, who converted them to cryptocurrencies and moved them to off-shore money laundering services. The scheme reportedly defrauded about 99 Americans for years.

A trial ensued after the U.S. state and federal authorities – as well as the Romanian National Police and the Romanian Agency for Prosecuting Organized Crime – arrested Iossifov earlier this year. The Frankfort, Kentucky-based federal jury confirmed that he had been providing his facilitatory services to the criminal scheme from at least September 2015 to December 2018. In that time, he allegedly exchanged about $5 million worth of Bitcoin for four members of the organization.

The crypto exchange boss was eventually found guilty of conspiracy to commit racketeering and conspiracy to commit money laundering. His sentencing has been set for January 12, 2021. However, the case is still mostly ongoing – Iossifov is the 17th member and affiliate of the organization to be convicted, and three of them are still at large.

Bithumb’s Chiefs in Hot Water 

Iossifov isn’t the only exchange boss to deal with fraud charges in this period. Earlier this month, South Korea’s state-run news agency Yonhap reported that the Seoul Metropolitan Police Agency had summoned Lee Jung-hoon, the chairman of Bithumb Korea and Bithumb Holdings, over suspected fraudulent operations. 

Per the report, Lee was accused of multiple embezzlement and fraud offenses concerning the failed listing of the BXA token. The token, which Bithumb had touted as its in-hour token, eventually failed to even hit the exchange, with investors crying out that they had lost 30 billion won (about $25 million).  

Per the report, the police were also looking to question Lee over alleged embezzlement operations that he conduced in overseas purchases and foreign investments. Along with Lee, they also opened investigations into Kim Byung-gun, another chairman at Bithumb, over his involvement with BXA.  

The police already raided Bithumb’s Gangnam District office twice this month alone. The first raid happened on September 2, while the second occurred a day later, according to reports from Seoul Shinmun. On both occasions, the police had sought additional information that could help with the case. On the third raid, they reportedly seized some of Kim’s shares as well.

DoJ Charges Bitcoin Exchange Boss Facilitating Money Laundering Scheme

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