The rise of cryptocurrency has ushered in a new era of financial opportunities, but it has also brought significant challenges, particularly in combating fraud. While the U.S. government has made strides in investigating and prosecuting crypto-related crimes, current regulations often fail to prioritize victims’ restitution, leaving them shortchanged. This issue is exacerbated by 28 CFR 9.8(c), a Department of Justice (DOJ) regulation that prioritizes the government’s right to forfeited funds over victims’ rights to full restitution.
This regulation not only undermines the intent of Congress to make victims whole under the Mandatory Victims Restitution Act (MVRA) but also raises questions about fairness and the role of government in ensuring justice. This article explores the impact of this regulation and suggests amendments to align DOJ practices with the goals of the MVRA and the principles of fairness.
The Problem with 28 CFR 9.8(c)
28 CFR 9.8(c) limits the amount that can be restored to victims from forfeited funds to the “fair market value of the property” as of the date of the loss. In cases involving rapidly appreciating assets like cryptocurrency, this regulation often prevents victims from receiving the full value of their losses.
For example, if a victim lost 10 Bitcoin when its value was $10,000 per coin, and the government later seized the same Bitcoin when its value had risen to $40,000 per coin, the victim would only be compensated for the original $100,000 loss. The additional $300,000 in appreciation would remain with the government, leaving the victim significantly shortchanged.
This approach directly contradicts the MVRA’s formula for restitution, which states that victims should be compensated for the greater of the asset’s value on the date of the loss or the date of sentencing. The regulation’s limitation on restoration effectively results in a windfall for the government at the expense of the victims.
The Impact on Victims
Victims of cryptocurrency fraud face immense challenges, including:
Lack of Restitution for Appreciation: Victims are denied the right to compensation for the appreciation of stolen assets, even when those gains are directly tied to the fraud.
Limited Judicial Review: The administrative process for applying 28 CFR 9.8(c) offers little to no meaningful oversight, further marginalizing victims.
Exacerbated Financial Losses: With cryptocurrency being highly volatile, the discrepancy between the loss date value and the current value can be enormous, compounding victims’ hardships.
Recommendations for Regulatory Amendments
To align DOJ regulations with the intent of the MVRA and ensure victims are fully compensated, the following amendments should be considered:
Adjust Restoration to Reflect Asset Appreciation:
Prioritize Victims Over Government Windfalls:
Enhance Transparency and Oversight:
Expand Victim Awareness and Support:
Facilitate Cross-Border Asset Recovery:
Promote Blockchain Analytics for Recovery:
Benefits of Reform
Implementing these amendments would yield several benefits:
Fair Compensation for Victims: Ensuring that victims receive restitution for the full value of their losses, including asset appreciation.
Alignment with Congressional Intent: Restoring the integrity of the MVRA by prioritizing victim compensation.
Public Trust in Crypto Justice: Demonstrating the government’s commitment to fairness and justice would enhance public confidence in the crypto ecosystem.
Deterrence for Bad Actors: A robust and victim-centric recovery process would discourage potential fraudsters by increasing the likelihood of asset recovery and penalties.
Conclusion
The current application of 28 CFR 9.8(c) undermines the principles of fairness and justice, particularly in the context of cryptocurrency fraud. By prioritizing government windfalls over victim restitution, the regulation conflicts with Congress’ intent to make victims whole under the MVRA.
Amending this regulation to account for asset appreciation and prioritize victims would represent a significant step toward justice. In a rapidly evolving financial landscape, it is crucial for regulatory frameworks to adapt and protect those most vulnerable to fraud. Ensuring that victims, rather than the government, benefit from recovered assets is not just a legal imperative but a moral one.
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Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal or financial advice.
Author & Crypto Consultant
Shahid Jamal Tubrazy (Crypto & Fintech Law Consultant)
Shahid Jamal Tubrazy, a certified top expert in Crypto Law from Duke University, is a leading authority in the cryptocurrency and blockchain space. As a seasoned Fintech lawyer, he offers a full spectrum of services, including licensing, legal guidance for ICOs, STOs, DeFi, and DAOs, as well as specialized expertise in crypto mediation, negotiation, and mergers and acquisitions. With a proven track record and published works on Blockchain Regulation and Cryptocurrency Laws, Shahid provides unparalleled insights into the complexities of the fintech world, ensuring compliance and strategic success. 🌐💼 #CryptoLaw #Fintech #Blockchain #LicenseServices #CryptoMediator #MergersAndAcquisitions #CryptoCompliance #FrozenAssetsrecovery.
EMAIL: shahidtubrazy@gmail.com
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