The designation of prominent drug and violent cartels as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs) by the Trump administration presents a significant and potentially damaging challenge to the cryptocurrency industry. This executive action, coupled with aggressive interpretations of anti-terrorism statutes, introduces substantial new risks for crypto actors, including software developers and investors. While the immediate focus appears to be on dismantling these criminal organizations, the broad application of laws like 18 U.S.C. § 2339B – the material-support statute – raises concerns about unwarranted investigations and civil lawsuits targeting the digital asset community.
The Department of Justice (DOJ) has swiftly responded to President Trump’s directives, issuing a memo instructing federal prosecutors to utilize “the most serious and broad charges,” including anti-terrorism accusations, against designated cartels and transnational criminal organizations. This shift represents a critical change in prosecutorial strategy. Previously, prosecutors relied primarily on drug and money-laundering statutes. Now, they have the authority to invoke material-support laws, opening the door to investigations based on the allegation that individuals or entities provide “material support or resources” to these organizations. This definition is remarkably broad, encompassing “any property, tangible or intangible, or service,” creating a substantial expansion of potential liabilities.
The implications for the crypto industry are becoming increasingly clear. Aggressive prosecutors could view software developers who design cryptocurrency platforms – and those who fund these protocols – as knowingly providing “material support or resources” to terrorists and launch investigations, despite the fact that crypto platforms are not traditional financial institutions and do not typically hold users’ assets. The DOJ’s recent indictment of the developers of Tornado Cash, a blockchain-based software protocol, underscores this risk. The developers were charged with money laundering and sanction violations, accused of operating a large-scale operation that laundered over $1 billion in criminal proceeds for cybercriminals, including a sanctioned North Korean hacking group. This demonstrates a willingness to pursue legal action against crypto companies for facilitating illicit activities.
The threat is compounded by the established use of cryptocurrency by drug cartels for laundering proceeds. Numerous cases have already been brought against individuals for laundering drug money through cryptocurrency platforms, with organizations like TRM Labs identifying specific instances where the Sinaloa cartel – a recently designated FTO/SDGT – has utilized crypto networks for illicit transactions. The increasing recognition of this activity by law enforcement underscores the potential for expanded scrutiny within the industry. The risk isn’t limited to the United States; anti-terrorism statutes have extraterritorial reach, meaning overseas crypto companies are not immune to investigation or prosecution.
Beyond criminal investigations, the designation of cartels as FTOs/SDGTs is anticipated to escalate the number of civil anti-terrorism lawsuits filed under the Anti-Terrorism Act (ATA). Under the ATA, private citizens or their representatives can sue terrorists for injuries sustained and anyone “who aids and abets, by knowingly providing substantial assistance, or who conspires with the person who committed such an act of international terrorism.” Following Binance’s guilty plea in late 2023 in connection with the Hamas attacks in Israel, victims initiated lawsuits under the ATA, alleging Binance facilitated funding and transactions for terrorist activities. While the district court initially permitted the plaintiffs to proceed against Binance with their aiding-and-abetting theory, the situation remains evolving. This trend is expected to continue as more crypto companies face scrutiny.
Given these developments, increased vigilance is crucial for all actors in the digital asset community. Crypto companies must implement robust compliance measures, actively identifying and blocking transactions with designated FTOs/SDGTs, continuously monitoring for new terrorist designations, and assessing new geographical risks. The potential reputational damage and costs associated with defending anti-terrorism investigations are significant, and violations of anti-terrorism statutes carry potential penalties of up to 20 years imprisonment, or life, if a death occurred, along with substantial monetary fines. The combination of these factors underscores the critical need for proactive risk management within the digital asset sector.