DOJ Issues Memo Calling for the End of "Regulation by Prosecution"

Yesterday, April 7, 2025, the Deputy Attorney General (DAG) of the United States Department of Justice (DOJ) released a memorandum for all department employees titled “Ending Regulation by Prosecution” for the digital asset industry. In this memo, the DAG makes clear that the era of regulation by prosecution is over, emphasizing that “The Department of Justice is not a digital assets regulator.”

Regarding the DOJ’s priorities, pursuant to Executive Order (EO) 14178, titled "Strengthening American Leadership in Digital Financial Technology,” the DAG notes that the DOJ, among others, is tasked with “protecting and promoting” the use of digital asset technology by law-abiding Americans. Subsequently, the DOJ commits to:

“... no longer target[ing] virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users for unwitting violations of regulations—except to the extent the investigation is consistent with priorities articulated in the following paragraphs.”

In other words, the DOJ commits to going after the people actually responsible for bad conduct and misuse of technology, instead of unfairly targeting software developers and providers of exchanges, interfaces and unhosted wallets (“offline wallets”) for the actions of third parties. 

Of course, the DOJ continues its investigation and prosecution of cases involving fraudulent activity and scams, such as:

“... victimizing investors, including embezzlement and misappropriation of customers' funds on exchanges, digital asset investment scams, fake digital asset development projects such as rug pulls, hacking of exchanges and decentralized autonomous organizations resulting in the theft of funds, and exploiting vulnerabilities in smart contracts.”

The DAG notes that the DOJ will also continue its work against “cartels, Transnational Criminal Organizations, Foreign Terrorist Organizations, and Specially Designated Global Terrorists” that use digital assets. However, the DOJ appropriately recognizes that it will not hold digital asset platforms liable for the actions of third parties over whom they have no control; an important principle also recognized in the civil context by the Second Circuit in affirming the Risley v. Uniswap Labs decision. Given this change, the DAG explains that cases and ongoing investigations inconsistent with these new priorities “should be closed,” and notes that the Office of the DAG will “review ongoing cases for consistency with this policy.”

Based on these priorities, the DAG set out considerations for criminal charges moving forward. Specifically, federal prosecutors are tasked with prioritizing cases where individuals either “cause financial harm to digital asset investors and consumers” or “use digital assets in furtherance of other criminal conduct, such as fentanyl trafficking, terrorism, cartels, organized crime, and human trafficking and smuggling.” 

Furthermore, the DAG has instructed prosecutors not to “charge regulatory violations in cases involving digital assets.” These regulatory violations include, but are not limited to: “unlicensed money transmitting under Section 1960(B)(1)(A) and (B), violations of the Bank Secrecy Act, unregistered securities offering violations, unregistered broker-dealer violations, and other violations of registration requirements under the Commodity Exchange Act.” Specifically, the DAG will not bring charges in cases where the DOJ must “litigate where a digital asset is a ‘security’ or ‘commodity’” and when it can pursue alternative criminal charges. The memo specifically says that any exceptions to this policy must be approved by the DAG, which gives this policy some teeth.

In a major update to the DOJ’s stance on Section 1960, the DAG clarifies that the DOJ will not prosecute regulatory violations in digital assets cases on the basis of “unlicensed money transmitting under Section 1960(b)(1)(A) and (B).” The DAG reemphasized that mens rea is required for the DOJ to bring an allegation of Sections 1960(b)(1)(A) and (B), noting that charges related to Section 1960 require “evidence that the defendant knew of the licensing or registration requirement at issue and violated such a requirement willfully.” This is validation that good faith reliance on 2019 FinCEN Guidance—which developers in the blockchain industry have used to understand what a “money transmitting business” is for the past six years—should not result in criminal liability.

However, the DAG does explain, in a footnote, that Section 1960(b)(1)(C) is not within the scope of this new policy. Unlike Section 1960(b)(1)(A) and (B)—which are licensing and registration focused—Section 1960(b)(1)(C) is a criminal offense that “involves the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity.” However, as we have explained elsewhere, any allegation of wrongdoing under any provision of Section 1960, including (b)(1)(C), must include the allegation that the person “transferring funds on behalf of” another person had control over those funds (under Section 1960(b)(2)), which cannot be the case for developers of noncustodial peer-to-peer software.

Importantly, the DAG also shared that the DOJ is shifting resources away from the over-prosecution of digital assets; the DOJ is disbanding the National Cryptocurrency Enforcement Team (NCET) – the team most responsible for opening investigations into digital asset projects simply for being associated with digital assets. However, the DAG still intends to provide guidance and training to DOJ personnel on digital assets.

Our Takeaways

The DAG’s memo is a positive step towards protecting software developers from liability for mere registration violations and from third parties’ misuse of the technology they created, especially when there is no way that a developer can anticipate the myriad of ways a third party will use the tools they created. Going forward, the DOJ is tasked with targeting the criminals actually committing the crimes, and not the tool-builders for merely building technology. This is a welcome signal of thoughtful leadership from the DOJ, and can be considered a major victory for the DeFi industry that centers around empowering users to leverage non-custodial software to transact on their own behalf. It is crucial that any ongoing prosecutions against crypto developers are evaluated to see whether they reflect the intent of this memo, and the stated objective of the White House to make America the “crypto capital of the world”—and, should those cases proceed further, how they might negatively implicate these goals via any new precedent they set.

It is also vital that these principles are reinforced by Congress, with protections cemented in thoughtfully-written legislation. This is particularly important in the context of Section 1960, and specifically Section 1960(b)(1)(C), which we strongly believe should not be used to target DeFi developers (who create software and do not take custody over anyone’s funds let alone transmit funds on anyone’s behalf).

All said, the DOJ memo was an incredibly positive milestone for the DeFi industry, and demonstrates a commitment by the administration to both provide clarity in the digital asset space and to strengthen America’s leadership in emerging innovation. At the DeFi Education Fund, we hope to see clear action following up the principles of this memo, and recognizing the importance of protecting non-custodial software development.