Trump’s focus on cartels highlights new risks for digital assets
Opinion by: Genny Ngai and Will Roth of Morrison Cohen LLP
Since taking office, the Trump administration has designated several drug and violent cartels as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). US President Donald Trump has also called for the “total elimination” of these cartels and the like. These executive directives are not good developments for the cryptocurrency industry. On their face, these mandates appear focused only on criminal cartels. Make no mistake: These executive actions will cause unforeseen collateral damage to the digital asset community. Crypto actors, including software developers and investors, may very well get caught in the crosshairs of aggressive anti-terrorism prosecutions and follow-on civil lawsuits.
Increased threat of criminal anti-terrorism investigations
The biggest threat stemming from Trump’s executive order on cartels is the Department of Justice (DOJ). Almost immediately after President Trump called for the designation of cartels as terrorists, the DOJ issued a memo directing federal prosecutors to use “the most serious and broad charges,” including anti-terrorism charges, against cartels and transnational criminal organizations.
This is a new and serious development for prosecutors. Now that cartels are designated as terrorist organizations, prosecutors can go beyond the traditional drug and money-laundering statutes and rely on criminal anti-terrorism statutes like 18 U.S.C. § 2339B — the material-support statute — to investigate cartels and anyone who they believe “knowingly provides material support or resources” to the designated cartels.
Why should the crypto industry be concerned with these developments? Because “material support or resources” is not just limited to providing physical weapons to terrorists. “Material support or resources” is broadly defined as “any property, tangible or intangible, or service.” Anyone who knowingly provides anything of value to a designated cartel could now conceivably violate § 2339B.
Even though cryptocurrency platforms are not financial institutions and never take custody of users’ assets, aggressive prosecutors may take the hardline view that software developers who design crypto platforms — and those who fund these protocols — are providing “material support or resources” to terrorists and launch harmful investigations against them.
This is not some abstract possibility. The government has already demonstrated a willingness to take this aggressive position against the crypto industry. For example, the DOJ indicted the developers of the blockchain-based software protocol Tornado Cash on money laundering and sanction charges and accused them of operating a large-scale money laundering operation that laundered at least $1 billion in criminal proceeds for cybercriminals, including a sanctioned North Korean hacking group.
Recent: Crypto crime in 2024 likely exceeded $51B, far higher than reported: Chainalysis
Moreover, the government already believes that cartels use cryptocurrency to launder drug proceeds and has brought numerous cases charging individuals for laundering drug proceeds through cryptocurrency on behalf of Mexican and Colombian drug cartels. TRM Labs, a blockchain intelligence company that helps detect crypto crime, has even identified how the Sinaloa drug cartel — a recently designated FTO/SDGT — has used cryptocurrency platforms to launder drug proceeds.
The digital asset community faces real risks here. Putting aside the reputational damage and costs that come from defending criminal anti-terrorism investigations, violations of § 2339B impose a statutory maximum term of imprisonment of 20 years (or life if a death occurred) and monetary penalties. Anti-terrorism statutes also have extraterritorial reach, so crypto companies outside the US are not immune to investigation or prosecution.
Civil anti-terrorism lawsuits will escalate
The designation of cartels as FTOs/SDGTs will also increase the rate at which crypto companies will be sued under the Anti-Terrorism Act (ATA). Under the ATA, private citizens, or their representatives, can sue terrorists for their injuries, 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.”
Aggressive plaintiffs’ counsel have already relied on the ATA to sue cryptocurrency companies in court. After Binance and its founder pled guilty to criminal charges in late 2023, US victims of the Oct. 7 Hamas attack in Israel sued Binance and its founder under the ATA, alleging that the defendants knowingly provided a “mechanism for Hamas and other terrorist groups to raise funds and transact illicit business in support of terrorist activities” and that Binance processed nearly $60 million in crypto transactions for these terrorists. The defendants filed a motion to dismiss the complaint, which was granted in part and denied in part. For now, the district court permits the Ranaan plaintiffs to proceed against Binance with their aiding-and-abetting theory. Crypto companies should expect to see more ATA lawsuits now that drug cartels are on the official terrorist list.
Vigilance is key
Crypto companies may think that Trump’s war against cartels has nothing to do with them. The reality is, however, that the effects of this war will be widespread, and crypto companies may be unwittingly drawn into the crossfire. Now is not the time for the digital asset community to relax internal compliance measures. With anti-terrorism statutes in play, crypto companies must ensure that transactions with all FTOs/SDGTs are identified and blocked, monitor for new terrorist designations, and understand areas of new geographical risks.
Opinion by: Genny Ngai and Will Roth of Morrison Cohen LLP.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
VanEck plans to launch a private digital assets fund in June targeting tokenized Web3 projects built on the Avalanche blockchain network, the asset manager said in a statement shared with Cointelegraph.
The VanEck PurposeBuilt Fund, available only to accredited investors, aims to invest in liquid tokens and venture-backed projects across Web3 sectors, including gaming, financial services, payments, and artificial intelligence.
Idle capital will be deployed into Avalanche (AVAX) real-world asset (RWA) products, including tokenized money market funds, VanEck said.
The fund will be managed by the team behind VanEck’s Digital Assets Alpha Fund (DAAF), which oversees more than $100 million in net assets as of May 21.
“The next wave of value in crypto will come from real businesses, not more infrastructure,” Pranav Kanade, portfolio manager for DAAF, said in a statement.
Related: Tokenized stocks could top $1T in market cap — Execs
Thematic crypto funds
VanEck’s PurposeBuilt Fund is the latest in a series of funds from the asset manager and rivals designed to offer exposure to projects and companies in fast-growing segments of Web3.
On May 14, VanEck launched a new actively managed exchange-traded fund (ETF) to invest in stocks and financial instruments providing exposure to the digital economy.
In April, VanEck launched another ETF investing in a passive index of companies operating in the crypto space.
Asset managers such as VanEck are requesting the US Securities and Exchange Commission’s (SEC) permission to list upward of 70 crypto ETFs.
The wave of ETF filings is in response to US President Donald Trump softening the agency’s regulatory stance toward crypto after Trump took office in January.
Avalanche RWA ecosystem
Avalanche has emerged as a hub for real-world assets (RWAs) and other institutional-oriented crypto projects.
Its interrelated networks, called subnets, allow institutions to run Ethereum-style smart contracts in a controlled environment. On May 16, Solv Protocol launched a yield-bearing Bitcoin token on the Avalanche blockchain, targeting institutional investors
Avalanche has around $1.5 billion in total value locked (TVL) as of May 21, according to data from DefiLlama.
“We’re seeing a shift away from speculative hype toward real utility and sustainable token economies,” John Nahas, chief business officer at Ava Labs, said in a statement.
Magazine: Danger signs for Bitcoin as retail abandons it to institutions — Sky Wee
A Democratic representative in the US Congress will support a blockchain bill at a time when many left-leaning lawmakers are blocking crypto-related pieces of legislation due to concerns with President Donald Trump’s potential conflicts of interest.
In a May 21 notice, Minnesota Representative Tom Emmer said he had reintroduced the Blockchain Regulatory Certainty Act, a bill that “solidifies that digital asset developers and service providers that do not custody consumer funds are not money transmitters.”Emmer, a Republican, said Democratic Representative Ritchie Torres would co-lead the bill, making it a bipartisan effort in Congress.
“The Blockchain Regulatory Certainty Act reflects a thoughtful, bipartisan effort to get digital asset policy right,” said Torres. “While similar language was voted down in markup last Congress, we took that feedback seriously and returned with a smarter, sharper framework that protects innovation without compromising oversight.”
Representatives of advocacy organizations, including the Crypto Council for Innovation, Solana Policy Institute, Digital Chamber, Coin Center, DeFi Education Fund and Blockchain Association, said they would support the proposed blockchain regulatory bill. It was unclear whether Emmer and Torres had a majority of votes in the House of Representatives for the legislation to pass.
Torres has supported many bills and policies favorable to the crypto industry since assuming office in 2021. Together with Emmer, he has led the Congressional Crypto Caucus to advance crypto-friendly policies in the House since March.
A bipartisan blockchain bill amid memecoin concerns?
Other Democratic House members, including Representative Maxine Waters, have suggested they intend to block any legislation related to crypto and blockchain until Republicans address Trump’s connections to the industry, such as his family’s stake in World Liberty Financial and his TRUMP memecoin. The president is planning to host a dinner with up to 220 people holding the most significant amounts of his memecoin on May 22.
Related: Interest groups, lawmakers to protest Trump’s memecoin dinner
Cointelegraph reached out to Torres’ office for comment but had not received a response at the time of publication.
Magazine: Trump’s crypto ventures raise conflict of interest, insider trading questions
Democratic leaning organizations and members of Congress have announced plans to protest what they describe as the sale of access to the office of the US president, in reference to Donald Trump’s memecoin dinner on May 22. The event’s attendees are said to have collectively spent over $100 million for the chance to meet with the US president.
Since Trump’s memecoin project, Official Trump (TRUMP), announced that its top 220 tokenholders would have an opportunity to apply for an exclusive dinner with the president, many leaders in the crypto industry and US lawmakers have criticized the event, saying Trump was opening his office to potential bribery and corruption.
The memecoin dinner prompted some Democratic lawmakers to withdraw support for crypto-related legislation in Congress, including the market structure and stablecoin bills.
“Trump collecting gifts from foreign governments is unconstitutional,” a spokesperson for the consumer advocacy organization Public Citizen, which is planning to protest near the memecoin dinner on May 22, told Cointelegraph. “Collecting foreign government investments through his memecoin is not much better. American foreign policy should not be for sale.”
Crypto industry figures such as Tron founder Justin Sun, Kronos Research chief investment officer Vincent Liu, Hyperithm co-CEO Oh Sangrok, and Synthetix founder Kain Warwick are among the tokenholders expected to attend the dinner at the Trump National Golf Club outside Washington, DC. The memecoin project said all applicants had to pass a background check and could not be from a “[Know Your Customer] watchlist country.”
Related: Democrats seek suspicious activity reports linked to Trump crypto ventures
Public Citizen, in partnership with progressive political organization Our Revolution, will hold a rally near the golf club, which Oregon Senator Jeff Merkley is expected to attend. In addition, the Arlington and Loudoun Democrats will be hosting a separate event to urge US officials to “hold [Trump] accountable,” and Democratic leadership in Congress has scheduled two press events on May 22 ahead of the dinner.
“Americans cannot and will not accept President Trump’s view that positions of power exist only to benefit the holder of that power,” Ryan Ruzic, chair of the Loudoun County Democratic Committee, told Cointelegraph. “We have a moral responsibility to speak out against corruption, whatever the result may be.”
Pushback on TRUMP memecoin affected crypto legislation
Some lawmakers initially cited the memecoin dinner and the Trump family’s involvement with the crypto platform World Liberty Financial in opposing passage of the GENIUS Act, a bill to regulate payment stablecoins. World Liberty Financial began issuing its own USD1 stablecoin in March, prompting concerns about Trump’s conflicts of interest. However, the legislation passed a key procedural vote in the Senate on May 19 with support from Democrats, setting the bill up for debate in the chamber.
“Many senators, myself included, have very real concerns about the Trump family’s use of crypto technologies to evade oversight, hide shady financial dealings, and personally profit at the expense of everyday Americans,” said Sen. Mark Warner in a statement before the May 19 vote, adding: “But we cannot allow that corruption to blind us to the broader reality: blockchain technology is here to stay.”
Senator Chris Murphy, who voted against advancing the GENIUS Act, called for bipartisan support in amending the bill to specifically bar a US president from issuing stablecoins. He also called on the White House to release a complete list of attendees to the memecoin dinner, suggesting that some or all of them would “try to get something from the president” in exchange for purchasing the tokens.
Murphy and Senator Elizabeth Warren will attend a press event with representatives for Public Citizen on May 22. California Representative Maxine Waters, ranking member of the US House Financial Services Committee, announced a separate press conference for the same day, with plans to introduce a bill to “block Trump’s memecoin and stop his crypto corruption, once and for all.”
As of May 21, the exact number of attendees to the dinner was unknown. A smaller group of 25 tokenholders also qualified to apply for “VIP tour” and reception — presumably at the White House — with Trump, but the complete list of those planning to attend was also unknown at the time of publication.
Magazine: Trump’s crypto ventures raise conflict of interest, insider trading questions
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