In a significant move to curb illegal activities at the U.S. Southwest border, the Financial Crimes Enforcement Network (FinCEN) issued an alert, on May 1, 2025, concerning oil smuggling from Mexico into the United States, orchestrated by notorious cartels such as the Cartel Jalisco Nueva Generacion (CJNG). This alert highlights the crucial role of financial institutions in identifying and reporting suspicious activities linked to this illicit trade. It forms part of a broader initiative involving U.S. law enforcement agencies, including the Treasury’s Office of Foreign Assets Control (OFAC), the DEA, FBI, and Homeland Security Investigations (HSI), all working in concert to dismantle the financial networks underpinning these transnational criminal operations. (See related blog posts here and here.) Simultaneously, OFAC announced sanctions against key individuals and entities connected to CJNG, which are involved in drug trafficking, fuel theft, and oil smuggling, generating extensive illicit revenues. Together, FinCEN and OFAC aim to outline specific financial typologies and red flags to effectively combat these smuggling schemes.

The Cartel’s Revenue Streams: Beyond Drugs

Crude oil smuggling has emerged as a significant revenue source for cartels like CJNG, Sinaloa, and Gulf Cartel, who have been implicated in stealing oil from Petróleos Mexicanos (Pemex). This stolen oil crosses the U.S. southwest border, finding its way into the hands of small U.S.-based oil companies. The ramifications are significant: exacerbating violence and corruption in Mexico while disrupting legitimate business operations in the U.S. oil market. Recognized as a Foreign Terrorist Organization (FTO) and Specially Designated Global Terrorist (SDGT), CJNG is involved in trafficking fentanyl and other narcotics into the U.S., contributing to economic instability. Recently, these groups have broadened their criminal portfolios to include fuel theft and crude oil smuggling, resulting in notable financial losses for the Mexican government and facilitating violence along the border.

Huachicol: The Mechanics of Smuggling

Cartels exploit existing trade flows to smuggle crude oil into the United States, taking advantage of Mexico’s export of unrefined and partially refined crude oil. They employ various illicit methods such as bribing employees, tapping pipelines, and hijacking tanker trucks to steal oil from Pemex. The stolen oil is often mislabeled as “waste oil” to avoid scrutiny and is sold at discounted rates by complicit importers in U.S. energy markets. This practice, known as huachicol, represents a substantial revenue source for cartels, with profits funneled back to sustain their operations.

Financial Institutions’ Role in Reporting

FinCEN has requested financial institutions to include the term “FIN-2025-OILSMUGGLING” in Suspicious Activity Reports (SARs) to enhance tracking of these activities. This initiative leverages financial oversight to combat transnational criminal organizations (TCOs), aiding law enforcement agencies in gathering data for targeted investigations.

Financial Typologies and Red Flags

Oil smuggling operations are characterized by complex financial maneuvers designed to disguise the origin and movement of funds. Cartels employ brokers to transport stolen oil, collaborating with U.S. importers who sell it in domestic and international markets. The proceeds are routed through multiple accounts, often via wire transfers that obscure transactions. Front and shell companies further mask operations, making it difficult for authorities to trace funds. FinCEN’s alert advises financial institutions to monitor for indicators such as below-market pricing, unusual profit margins, lack of appropriate registrations, and complex wire transfers across jurisdictions. To assist financial institutions in identifying suspicious activities related to oil smuggling, FinCEN has outlined several red flag indicators:

1. Transactional Activity and Profit Margins: Companies exhibiting transactional activity or profit margins significantly above industry norms may warrant further scrutiny.
2. Pricing of Crude Oil: Selling crude oil at prices well below market rates could indicate illicit sourcing.
3. Online Presence: Companies with minimal online presence or websites that mimic major industry players may be attempting to legitimize illicit operations.
4. Inconsistencies in Business Operations: Discrepancies between claimed business activities and transactional behavior, such as purchasing waste oil despite a focus on crude oil sales, are potential indicators.
5. EPA Registrations: Companies dealing with waste oil or hazardous materials without appropriate registrations from the U.S. Environmental Protection Agency (EPA) should be examined.
6. Shell Company Activity: Sudden, significant transactional activity with companies lacking online presence and exhibiting other characteristics of shell companies.
7. Wire Transfer Patterns: Complex wire transfer patterns involving multiple jurisdictions and accounts may be designed to obscure the origins and destinations of funds.

These indicators are not individually determinative of illicit activity, but when combined, they can provide a comprehensive profile of potentially suspicious operations.

Strategic Sanctions: Targeting Key Players

The FinCEN alert aligns with OFAC sanctions targeting individuals and entities involved in oil smuggling, aiming to dismantle networks facilitating illegal activities. Key figures sanctioned under Executive Orders 14059 and 13224 include CJNG leader Cesar Morfin Morfin, linked to both drug trafficking and oil theft. Associates and transportation companies involved in these operations have also been sanctioned, reinforcing efforts to dismantle the operational infrastructure of CJNG.

Collaborative Efforts and Compliance

FinCEN emphasizes the importance of information sharing under section 314(b) of the USA PATRIOT Act. Collaboration among financial institutions is crucial for tracing and preventing the movement of illicit funds. Sharing account or transaction information does not violate SAR confidentiality unless it reveals a SAR, allowing institutions to support investigations without legal complications. This complements the Treasury Department’s strategy of using sanctions to counter TCOs, reinforcing efforts to address narcotics trafficking and related crimes.

Conclusion: A Unified Approach

The FinCEN alert and OFAC sanctions represent a coordinated strategy to address cartel operations like those of CJNG. These measures provide insights into oil smuggling methodologies and aim to impact illicit revenue streams. Financial institutions play a key role in this process by adhering to outlined measures, supporting the integrity of the financial system and enhancing regional security. By targeting key figures and networks, U.S. authorities aim to contribute to a safer and more stable international environment, with financial entities playing an essential role in these efforts.

In this multifaceted approach, the collaboration between law enforcement and financial institutions is important to dismantling the intricate networks that support these criminal enterprises, paving the way for more effective interventions and a reduction in cartel-driven violence and instability.

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On May 1, 2025, the Financial Crimes Enforcement Network (FinCEN) released a Notice of Proposed Rulemaking (NPRM) regarding the Huione Group, a foreign financial institution located in Cambodia. This proposal, enacted under section 311 of the USA PATRIOT Act, suggests prohibiting U.S. financial institutions from forming or maintaining correspondent banking relationships with Huione Group. The NPRM identifies Huione Group as a significant money laundering concern, based on its purported role in facilitating unlawful financial activities.

Following an investigation, FinCEN found that Huione Group was involved in laundering at least $4 billion in illegal proceeds between August 2021 and January 2025, with the funds distributed as follows:

• Approximately $37 million was linked to cyber thefts conducted by North Korea;
• Around $36 million originated from scams known as “pig butchering”;
• About $300 million was related to various other cyber fraud schemes.

Background: Understanding Section 311 of the USA PATRIOT Act

Section 311 of the USA PATRIOT Act grants the Secretary of the Treasury the authority to identify foreign jurisdictions, financial institutions, or types of transactions that pose significant money laundering concerns. Upon such identification, the Secretary can impose special measures to mitigate risks to the U.S. financial system. These special measures can range from requiring enhanced record-keeping and reporting to prohibiting certain types of banking relationships.

The intention behind section 311 is to provide the U.S. government with flexible tools to protect the financial system from being exploited by money launderers and terrorist financiers. By targeting specific entities or jurisdictions, the U.S. aims to cut off illicit actors from accessing the global financial infrastructure.

Huione Group: A Profile of Concern

Huione Group, operating primarily out of Phnom Penh, Cambodia, is a conglomerate that includes several subsidiaries: Huione Crypto, Haowang Guarantee, and Huione Pay PLC. FinCEN’s investigations have identified the group as being involved in activities that significantly contribute to international money laundering schemes.

Key Findings

1. Laundering Proceeds from Cybercrimes and Sanctions Evasion

FinCEN’s analysis indicates that Huione Group has been utilized to launder funds associated with cyber heists, notably those executed by the Lazarus Group, a North Korean entity known for its cybercriminal activities. (Explore other blog posts about Lazarus Group here, here, and here.) These heists have targeted cryptocurrency exchanges and other digital asset platforms, resulting in the theft of substantial amounts of convertible virtual currency (CVC). The proceeds from these activities allegedly support the North Korean regime’s evasion of international sanctions, which are intended to prevent the financing of its weapons programs.

The relationship between Huione Group and North Korean actors is particularly concerning due to the geopolitical implications. By facilitating the movement of illicit funds, Huione Group potentially undermines international efforts to curb North Korea’s nuclear ambitions. This connection underscores the severity of the risk posed by the group’s activities.

    2.  Facilitation of CVC Investment Scams

In addition to laundering cybercrime proceeds, Huione Group is reportedly involved in facilitating CVC investment scams, commonly referred to as “pig butchering” scams. (We have previously discussed pig-butchering scams in our blog post here.) These scams are orchestrated by transnational criminal organizations (TCOs) operating primarily in Southeast Asia. They involve deceiving victims into investing in fraudulent CVC schemes under the pretense of high returns. Once the funds are invested, they are channeled through networks like Huione Group, where they are layered and integrated to obscure their illicit origins.

The prevalence of these scams highlights the vulnerabilities in the global financial system, especially regarding digital assets. The ability of criminal organizations to exploit these vulnerabilities has significant implications for consumer protection and financial stability. It also raises questions about the adequacy of regulatory frameworks governing the use of digital assets.

    3.  Ineffective AML/KYC Practices

Another critical finding from FinCEN’s analysis is the inadequacy of Huione Group’s anti-money laundering (AML) and know-your-customer (KYC) practices. Despite being subject to various reports and criticisms, the group has not implemented effective measures to detect and prevent money laundering activities. This lack of robust compliance infrastructure is a significant factor contributing to its designation as a primary money laundering concern.

Public statements from Huione Group have acknowledged these deficiencies, citing challenges in maintaining effective KYC capabilities. Such admissions raise concerns about the group’s ability to comply with international AML standards and its willingness to address identified shortcomings.

Proposed Special Measures

In response to these findings, FinCEN proposes to implement special measure five, under Section 311 of the USA PATRIOT Act, which involves prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for Huione Group. This measure seeks to mitigate the risks by severing the group’s access to the U.S. financial system, thereby limiting its ability to facilitate illicit financial activities.

Rationale for the Proposed Measures

1. Effectiveness in Addressing Risks

The proposed prohibition is considered the most effective measure to prevent Huione Group from engaging in activities that pose a risk to the U.S. financial system. Given the group’s history and the complexity of its operations, other measures, such as enhanced reporting or additional due diligence requirements, may not adequately deter or monitor its activities. The prohibition aims to directly cut off the pathways through which illicit funds are processed.

      2.  Impact on Legitimate Business Activities

While the prohibition may impact some legitimate business activities conducted by Huione Group, FinCEN’s analysis suggests that a substantial portion of the group’s transactions are linked to illicit activities. By focusing on correspondent banking relationships, FinCEN seeks to target specific channels through which money laundering risks are most pronounced, minimizing the impact on legitimate operations to the extent possible.

    3.  Alignment with International Efforts

Although similar actions have not been widely adopted by other countries, FinCEN’s proposal aligns with broader international efforts to combat money laundering and financial crimes. The global nature of financial networks means that actions taken in one jurisdiction can have ripple effects worldwide. This proposal underscores the importance of international cooperation and coordination in tackling these issues.

Broader Implications for the Financial Sector

The proposed measures against Huione Group have significant implications for the financial sector, both domestically and internationally. For U.S. financial institutions, the prohibition necessitates a reevaluation of existing correspondent banking relationships and the implementation of enhanced due diligence procedures. Institutions must ensure compliance with the proposed rule to avoid potential penalties and reputational damage.

On an international level, FinCEN’s actions may prompt other jurisdictions to reassess their regulatory frameworks and cooperation mechanisms. The designation of Huione Group as a primary money laundering concern highlights the need for robust AML/CFT (counter-financing of terrorism) measures that can effectively address the challenges posed by digital assets and transnational financial crimes.

Conclusion

FinCEN’s proposal to impose special measures against Huione Group represents an important development in efforts to maintain the integrity of the U.S. financial system. This action is part of a broader initiative by the Treasury Department to address financial entities that contribute to cybercrime and sanctions evasion, particularly in regions with weaker regulatory environments. By concentrating on issues such as crypto-related fraud, state-sponsored cybercrime, and international money laundering networks, FinCEN highlights its commitment to using the tools available under Section 311. This strategy addresses immediate threats while emphasizing the need for global collaboration to combat money laundering and financial crimes. If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering

In March, we wrote about the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issuing a Geographic Targeting Order (GTO) aimed to combat Mexican-based drug cartels.  The GTO signals Treasury’s efforts to combat cartel activity by requiring heightened anti-money laundering reporting for money services business (MSBs) along the southwest border.  The GTO—which went into effect on April 14, 2025—can be found here.  It requires all MSBs—check cashing companies, currency transmitters and foreign exchange dealers, among other financial services businesses—located in 30 ZIP codes across the U.S.-Mexico border in California and Texas to file Currency Transaction Reports (CTRs) with FinCEN at a $200 threshold in connection with cash transactions.  FinCEN announced that the purpose of the GTO was to “further combat the illicit activities and money laundering of Mexico-based cartels and other criminal actors along the southwest border” and is one of many examples of the new administration’s significant shifts in its approach to criminal enforcement and prosecution of money laundering cases

But two recent challenges successfully—at least temporarily—enjoined the enforcement of the GTO for certain MSBs.

The first challenge came from the Texas Association for Money Services Businesses (TAMSB), a trade group who filed in the Western District of Texas a complaint for declaratory judgment and injunctive relief in a case captioned Texas Association for Money Services Businesses, et al. v. Bondi et al., No. 5:25-cv-00344 (W.D. Tex. Apr. 1, 2025)(with amended complaint filed on April 18, 2025).  TAMSB claimed the new over-$200 reporting obligation would be extremely burdensome administratively. For example, TAMSB claimed that one of its members predicted that it will go from filing an average of nine CTRs per week across its dozens of locations in Texas to nearly 50,000 under the GTO. TAMSB further claimed that the administrative burden will be “financially ruinous” or customers will simply take their business elsewhere. The amended complaint alleged that the GTO violated the Administrative Procedures Act (APA) and TAMSB’s Fifth Amendment’s due process and equal protection guarantees by “depriving [the TAMSB members] of protected property interests without notice” and “targeting . . . particular zip codes.” 

In granting TAMSB’s motion for a temporary restraining order (TRO) on the original complaint, the court found that the TAMSB: (a) demonstrated a substantial likelihood of success on the merits of its claims under the APA and Fifth Amendment; and (b) will suffer irreparable harm absent emergency injunctive relief, including the threat of business closure, reputational injury, and loss of customers and good will.  That TRO—which applied only to TAMSB members and not more broadly—expired on April 25, 2025. Briefing on the TAMSB’s motion for preliminary injunction is ongoing.

The second challenge came from an MSB operating in San Diego, California and its owner and operator that filed a similar claim for injunctive relief in the Southern District of California in Novedades Y Servicios, Inc. et al v. Financial Crimes Enforcement Network et al., Docket No. 3:25-cv-00886 (S.D. Cal. Apr 15, 2025).  On April 22, 2025, the court granted an ex parte motion for a TRO temporarily blocking the GTO.  Plaintiffs asserted challenges under the APA and Fifth Amendment but also that the GTO violates the Fourth Amendment and “operates as a general warrant insofar as it was fashioned by law enforcement to sweep up information about otherwise private cash transactions throughout the targeted zip codes” in order for law enforcement to “combat[] Mexican cartels, without any individualized probable cause.”  Plaintiffs allege that the $200 threshold “results in an unreasonable search because it requires businesses to report information about their customers’ ordinary, everyday cash transaction without any individualized suspicion or showing of probable cause.”  Among other procedural and due process arguments, plaintiffs argue that the GTO will result in “hours of new paperwork daily” and will “impose crushing costs” on the MSB.

In granting the TRO, the court found that: (a) plaintiffs demonstrated a substantial likelihood of success on the merits of their claim that the GTO was unlawfully issued without notice and that the GTO was arbitrary and capricious; (b) that plaintiffs have suffered immediate and irreparable harm, including the threat of business closure and the loss of customers and goodwill; and (c) that the balance of equities favor plaintiffs while not significantly intruding on FinCEN’s ability to continue to regulate financial institutions.  This TRO too is limited; it applies only to covered businesses (as defined in the GTO) located in the Southern District of California.  The court set a hearing for mid-May to hear plaintiffs’ motion for preliminary injunction.

These decisions temporarily halt enforcement of the GTO for a limited population of MSBs located in the impacted areas.  But they signal that the new administration will need to litigate the legality of the GTO on multiple fronts and engage on multiple legal theories (including allegations of violations of the Fourth and Fifth Amendments and the APA) before the GTO is fully implemented and up and running.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

In a significant policy shift, Deputy Attorney General Todd Blanche issued a memorandum titled “Ending Regulation By Prosecution,” on April 7, 2025, signaling a change in the Department of Justice’s (DOJ) approach to digital assets. The memorandum, outlines a move away from the previous administration’s enforcement efforts, which the memo called “reckless” and “ill conceived and poorly executed.” This shift aligns with Executive Order 14178 and President Trump’s vision to foster innovation within the digital assets industry without punitive regulatory measures.

Key Takeaways

The memorandum marks a pivotal change in how digital assets are treated by the DOJ, moving away from regulatory prosecutions to focus on criminal activities. Below are the main points of this policy shift:

1. Focus on Individual Criminal Activity: The DOJ will now prioritize prosecuting criminal activity of individuals who cause financial hardship to digital asset investors and consumers and those who use digital assets to further criminal conduct, such as fentanyl trafficking, terrorism, cartels, organized crime, and human trafficking.
2. Ceasing “Regulation by Prosecution”: At the same time, prosecutors are directed to stop pursuing cases related to regulatory violations by cryptocurrency entities. Investigations not aligned with the new focus on criminal activity are to be discontinued.
3. Alignment with Administration Policy: This change aligns with President Trump’s executive order aimed at promoting innovation in the cryptocurrency sector by reducing regulatory hurdles.
4. Disbandment of the NCET: The DOJ has dissolved the National Cryptocurrency Enforcement Team, established in 2022. The DOJ clarified that it does not serve as a regulatory body for digital assets.  To that end, DOJ will no longer pursue cases that “superimpose[e] regulatory frameworks on digital assets.”

This policy shift reflects a transition towards addressing the criminal misuse of digital assets rather than focusing on regulatory compliance. (For more information, check out our recent blog posts on cryptocurrency regulation here and here.) What remains to be seen is whether DOJ’s move away from “regulation by prosecution” will apply more broadly and impact priorities related to other industries outside of digital assets that are not the subject of an Executive Order.

A New Focus on Digital Assets Enforcement

The digital assets industry is increasingly recognized as a component of modern economic development, with potential for innovation. The DOJ’s revised strategy focuses on ensuring clarity and certainty in enforcement policies, as directed by Executive Order 14178. The memorandum emphasizes that the DOJ “is not a digital assets regulator;” instead, it commits to prosecuting individuals who exploit digital assets for criminal activities.

Under the new framework, prosecutions will prioritize investigations and prosecutions that involve: (1) conduct victimizing digital asset investors (e.g., embezzlement and misappropriation of customers’ funds on exchanges, digital asset investment scams, hacking of exchanges, etc.); and (2)  individuals who use digital assets to facilitate crimes such as terrorism, narcotics trafficking, human trafficking, organized crime, hacking, and cartel financing. This approach emphasizes investor protection and the security of digital asset markets, while delegating regulatory compliance to other bodies. The memorandum also notes the increasing reliance on digital assets by certain criminal elements and aligns with the administration’s focus on transnational criminal organizations, foreign terrorist organizations, and designated global terrorists. 

Charging Considerations and Regulatory Clarity

A key aspect of the new policy is guidance for federal prosecutors on charging decisions. Prosecutors are instructed to prioritize cases holding individuals accountable for causing financial harm to digital asset investors or using digital assets in furtherance of criminal conduct. While the DOJ will pursue individuals and enterprises involved in these illicit activities, it will refrain from targeting platforms unless they are complicit. Cases based on regulatory violations, such as unlicensed money transmitting or violations of the Bank Secrecy Act, will not be pursued unless there is clear evidence of willful law violations.

It remains to be seen what impact, if any, this policy will have on ongoing criminal prosecutions. The memorandum notes that the DOJ “will no longer target virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations . . . .” Instead, the DOJ will now focus on individuals who use these technologies for illicit activities. Later this year, the DOJ is scheduled to put Roman Storm, co-founder of mixing service Tornado Cash, on trial for crimes including conspiracy to launder money and sanctions violations. This case raises questions about the liability of developers for open-source code used by others to commit crimes. However, the DOJ’s policy does not apply to 18 U.S.C. §1960(b)(1)(C), indicating that knowingly transmitting funds derived from or intended for illegal activities remains a prosecutable offense. (See additional blog posts about Tornado Cash here, here and here.)

The memorandum outlines a discretionary approach to charging violations under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Commodity Exchange Act. Prosecutors are advised to avoid cases that require the DOJ to litigate the classification of a digital asset as a “security” or “commodity” unless no alternative criminal charge is available.

Compensating Victims in the Digital Assets Space

The memorandum addresses compensating victims of digital asset fraud, particularly after the market downturn in 2022. The DOJ acknowledges that current regulations may prevent victims from recovering the full value of lost assets, especially when asset values fluctuate significantly. To address this, the DOJ’s Office of Legal Policy and Office of Legislative Affairs are tasked with evaluating legislative and regulatory changes to improve asset-forfeiture efforts and ensure fair compensation for victims.

Reallocating Resources and Future Engagement

Aligned with the narrowed focus on digital asset enforcement, the DOJ will reallocate resources. The Market Integrity and Major Frauds Unit will cease cryptocurrency enforcement activities, and the National Cryptocurrency Enforcement Team (NCET) will be disbanded. However, the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) will continue to provide guidance and liaise with the digital asset industry.

Additionally, the DOJ will participate in the President’s Working Group on Digital Asset Markets, as established by Executive Order 14178. DOJ representatives will contribute to identifying and recommending regulatory and legislative measures that align with administration policies and priorities. This collaborative effort aims to shape a balanced regulatory environment that supports innovation while ensuring robust protections against criminal exploitation.

A New Stance on Crypto

The DOJ’s policy shift is part of a broader rollback of government efforts to regulate the crypto industry, with regulatory bodies like the Securities and Exchange Commission refocusing their enforcement strategies and banking regulators allowing some crypto activities. This realignment reflects President Trump’s campaign promises in the sector. .

Conclusion

The memorandum from Deputy Attorney General Blanche represents a significant shift in the DOJ’s approach to digital assets. By moving away from prosecuting virtual currency platforms, the DOJ aims to create a regulatory environment that encourages innovation while maintaining a focus on prosecuting individuals who victimize digital asset investors and preventing criminal misuse of digital assets. This strategy underscores the importance of balancing industry growth with robust enforcement measures to protect investors and national security.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

On March 13, 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which aims to establish a regulatory framework for payment stablecoins, passed the United States Committee on Banking, Housing, and Urban Affairs with a bipartisan 18-6 vote, paving the way for Congressional approval. The bill was introduced and sponsored by Senator Bill Hagerty (R-Tenn.) and has earned the support of Senator Tim Scott (R-SC), Senator Kristen Gillibrand (D-NY) and Senator Cynthia Lummis (R-Wyo.). Senator Warren (D-Mass) requested that the Act include treating stablecoin issuers as “financial institutions” under the Bank Secrecy Act.

The GENIUS Act seeks to regulate payment stablecoins by limiting US stablecoin business to “permitted stablecoin issuers” who are subject to state and federal licensing and oversight, reserve requirements, and prompt redemption.  Stablecoin custodians are also subject to regulation.  For purposes of clarity, the draft GENIUS Act specifies that stablecoins are not to be treated as securities.

Currently, the top two stablecoins are Tether with a market capitalization of approximately 143 billion and USDC with a market capitalization of 59 billion, each of which is designed to be linked on a 1:1 basis with the USD. Stablecoins like Tether and USDC allow owners to purchase digital assets like Bitcoin or Ethereum without involving banks to move dollars on and off of exchanges. Circle, which sponsors USDC, is regulated in Bermuda, France, Singapore and the UK, as well as licensed as a money transmitter in 49 states. Tether is based in the Caribbean and is registered with FinCEN as a Money Service Business.  According to reports, Tether is not regulated on the state level. 

The draft GENIUS Act provides that a “permitted payment stablecoin issuer shall be treated as a financial institution for purposes of the Bank Secrecy Act” (“BSA”). However, issuers of stablecoins are already deemed to be BSA financial institutions.  Current 13 USC 5312(a)(2) defines “financial institution” to include “A licensed sender of money or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system.” In 2019, FinCEN Guidance FIN-2019-G001, made it relatively clear that stablecoin issuers were money service businesses and hence financial institutions. (See related blog posts here and here.)  As a result, it appears that both Tether and USDC are already treated as financial institutions for AML purposes and the specific inclusion in the GENIUS Act should be unnecessary.  We suspect that Senator Warren was concerned that FinCEN’s interpretation of the BSA could be challenged under Loper Bright, which removed the concept of Chevron deference and the inclusion of specific congressional intent to include stablecoin issuers as financial institutions added certainty.   

Overall, from an anti-money laundering perspective, the GENIUS Act is unlikely to have a major impact on issuers who were already subject to regulation as a financial institution. 

Next Steps

The future of the GENIUS Act remains uncertain. Proponents of the GENIUS Act stress the importance of regulatory clarity in the crypto space. Circle’s chief strategy officer (an issuer of U.S. stablecoin) lauded the bill and stated that it “provides a pathway for the U.S. to lead rather than be led.” Critics of the bill, however, worry that the passage of the GENIUS Act as is could destabilize banking, increase anti-social access to funds and increase risk overall.

Ballard Spahr will continue to monitor the bill’s progress, which will need bipartisan support to pass in the Senate.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

On March 7, 2025, the Office of the Comptroller of the Currency (“OCC”) released Interpretive Letter 1183, marking a pivotal change in regulatory guidance for national banks and federal savings associations engaging in cryptocurrency activities. This recent directive, issued under Acting Comptroller Rodney Hood, rescinds the requirements set by Interpretive Letter 1179 from November 2021. The updated guidance reaffirms the permissibility of certain crypto-related activities while eliminating the need for prior supervisory non-objection.

Background

Interpretive Letter 1183 marks a significant regulatory update under Acting Comptroller Rodney Hood, who assumed his role earlier this year. This letter aims to standardize how banks engage with digital assets, removing the constraints imposed by previous guidance. The rescinded directive from former Acting Comptroller Michael Hsu required banks to seek supervisory approval before participating in crypto activities—a process that was often seen as a barrier to innovation and growth in the sector.

In contrast, the new guidance focuses on reducing regulatory burdens and fostering transparency, thereby encouraging responsible innovation within the banking industry. The OCC continues to support activities outlined in earlier interpretive letters, such as crypto asset custody (IL 1170), stablecoin reserves (IL 1172), and blockchain payment facilitation (IL 1174), initially introduced under former Comptroller Brian Brooks.

Understanding the Interpretive Letters

The OCC’s interpretive letters serve as legal clarification for national banks, delineating the scope of permissible activities concerning digital assets. These letters play a central role in shaping the regulatory landscape, offering clarity on the integration of traditional banking operations with emerging cryptocurrency technologies. Each letter addresses specific aspects of crypto involvement, reflecting the evolving understanding and acceptance of digital finance within the regulatory framework:

• IL 1170 (July 2020): This letter was a milestone, officially allowing banks to offer crypto asset custody services. It enabled banks to securely store digital assets for their customers, integrating cryptocurrency management into mainstream banking services.
• IL 1172 (September 2020): Focused on stablecoins, this letter permits banks to hold deposits as reserves for these digital currencies. It acknowledges the growing role of stablecoins in financial transactions, providing a regulated pathway for banks to engage with this asset class under specific conditions, such as compliance with anti-money laundering protocols.
• IL 1174 (January 2021): This letter authorized banks to utilize distributed ledger technology, facilitating payment activities involving stablecoins. It highlights the potential of blockchain technologies to enhance payment systems, allowing banks to act as nodes on verification networks, thereby increasing efficiency and transparency in financial transactions.
• IL 1179 (November 2021): Introduced under the Biden administration, this letter required banks to obtain a supervisory non-objection before engaging in cryptocurrency activities. This regulatory step aimed to ensure adequate risk management but posed a hurdle for institutions eager to innovate in the crypto space.
• IL 1183 (March 2025): The latest letter rescinds IL 1179, removing the non-objection requirement and reaffirming the permissibility of activities outlined in previous letters. It reflects the OCC’s confidence in banks’ risk management capabilities, promoting a streamlined approach to integrating digital asset services while maintaining safety and soundness standards.

Through these interpretive letters, the OCC provides a structured approach for banks to navigate the complexities of digital assets, ensuring that innovation can proceed within a safe and regulated environment.

Evolving Policies

Alongside Interpretive Letter 1183, the OCC has retracted its support for joint statements on crypto-asset risks issued in collaboration with the Federal Reserve and FDIC earlier this year. These statements highlighted the potential risks posed by crypto markets to banking stability, particularly after high-profile incidents like the FTX collapse. The withdrawal signifies a shift in the OCC’s approach, focusing on integrating digital assets within traditional banking frameworks while maintaining safety and soundness.

Looking ahead, the updated guidance may pave the way for banks to re-enter the crypto sector, potentially through partnerships with established service providers. However, the industry anticipates further regulatory adjustments from the Federal Reserve and FDIC to establish a comprehensive framework for crypto banking services.

Conclusion

The OCC’s latest interpretive letter marks a transition in the regulatory landscape for banks dealing with digital assets. By re-affirming and broadening the scope of permissible activities, the letter indicates a growing acceptance of cryptocurrencies within the banking sector, setting the stage for future developments. As banks explore these opportunities, they must continue to uphold robust risk management practices to ensure the safety and soundness of their operations.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

We have written previously about the new administration’s significant shifts in its approach to criminal enforcement and prosecution of money laundering cases.  Specifically, we wrote about shifts at the U.S. Department of Justice (DOJ) as seen in United States Attorney General Pamela Bondi’s February 5, 2025 memorandum outlining the ways in which the DOJ will aim to eliminate cartels.  With respect to money laundering, the memo establishes that DOJ will “prioritize investigations, prosecutions, and asset forfeiture actions that target activities” of cartels.  Later in the month, on February 20, 2025, the U.S. Department of State designated six Mexico-based drug cartels Foreign Terrorist Organizations and Specially Designated Global Terrorists.  Now, the U.S. Department of Treasury has joined in.  On March 11, 2025, Treasury’s Financial Crimes Enforcement Network (“FinCEN”) announced its issuance of a Geographic Targeting Order (GTO) that strongly signals its own efforts to combat cartel activity by requiring more information about cash transactions from money services business along the Mexican border.  

FinCEN’s GTO requiring all money services businesses (MSBs) – check cashing companies, currency transmitters and foreign exchange dealers, among other financial services businesses – located in 30 ZIP codes across the southwest border in California and Texas to file Currency Transaction Reports (CTRs) with FinCEN at a $200 threshold in connection with cash transactions.  Aligning with DOJ’s priorities with what Treasury Secretary Scott Bessent called a “whole-of-government approach,” FinCEN announced that the purpose of the GTO was to “further combat the illicit activities and money laundering of Mexico-based cartels and other criminal actors along the southwest border of the United States.”  Secretary Bessent continued that the “issuance of this GTO underscores [the United State’s] deep concern with the significant risk to the U.S. financial system of the cartels, drug traffickers, and other criminal actors along the Southwest border.”

Federal law requires financial institutions to report currency (cash) transactions over $10,000 conducted by, or on behalf of, one person, as well as multiple currency transactions that aggregate to be over $10,000 in a single day.  These transactions are reported on CTRs.  To this end, financial institutions must obtain personal identification about the individual conducting the transaction such as a Social Security number as well as a driver’s license or other government issued document.  With the new GTO, FinCEN significantly lowers the $10,000 dollar threshold, requiring MSBs along the southwest border to flag cash transactions at only $200.  Of note too is the fact that the GTO does not change Suspicious Activity Report-filing obligations but states that FinCEN “encourages the voluntary filing of [Suspicious Activity Reports] where appropriate to report transactions conducted to evade the $200 reporting threshold imposed . . . .”

The GTO takes effect on April 14, 2025 and will remain in effect for 180 days.  The GTO, of course, may be renewed. 

What does this means for financial institutions?

• MSBs that operate in the impacted areas along the southwest border should consider the impact on customer-facing functions.  Customer-facing employees will need to be trained on the new limits.  The MSBs may even need to increase staffing to the extent that completing CTRs for more customers simply takes more time. 

• MSBs should also consider the impact on non-customer facing employees.  MSBs’ compliance teams will want to take steps such as assessing resources needed to comply with the order and manage what may be a significant increase in the number of CTRs completed by customer-facing employees and reviewing and updating their compliance procedures.  Given the new priorities of both DOJ and FinCEN and its focus on combatting illicit finance by drug cartels and other illicit actors along the southwest border, MSB compliance teams should prepare for additional scrutiny of their current CTR and SAR-filing procedures and likely increased law enforcement outreach in the form of requests for SAR-supporting materials, grand jury subpoenas, and less formal inquiries.

• Banks that have MSBs as customers should consider what changes, if any, they should make to the policies and procedures in their own anti-money laundering programs.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch.  Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

Recent developments in the world of crypto have come at a rapid pace to open 2025 not only signaling but, in some instances, explicitly declaring the Trump Administration’s intent to significantly relax or eliminate regulation and enforcement in the crypto markets.  On January 23, 2025, President Trump signed an executive order with the goal of “providing regulatory clarity and certainty” declaring a new approach to crypto regulation and enforcement. On February 4, the head of a task force created by the US Securities and Exchange Commission (SEC) outlined items the task force planned to address and criticized the prior administration’s policies on crypto. On February 21, 2025, the SEC closed its investigations into Opensea and Robinhood without taking further action and dismissed claims against Coinbase.  Then, on February 27, 2025, the SEC announced that memecoins no longer would be considered securities subject to SEC oversight.  

Yet, while the new administration has declared its intent to take a far more hands-off approach to cryptocurrency regulation and enforcement, it is possible all such efforts are not necessarily dead.  On February 24, 2025, OKX pled guilty to one count of operating an unlicensed money business agreeing to enormous fines. The administration’s apparent efforts to limit regulation of the cryptocurrency markets would appear to put to rest the prior Congress’s efforts to legislate cryptocurrency enforcement between the SEC and CFTC.  Meanwhile, private litigation continues against crypto exchanges and issuers indicating that even though federal enforcement may become much more relaxed, civil litigants may become something of a check on the industry.

1.            The Executive Order

President Trump issued an executive order concerning crypto on January 23, 2025.  The Executive Order established an inter-agency task force, referred to as the President’s Working Group on Digital Asset Markets (the “Working Group”). The Working Group is chaired by David Sacks (the “Chair”), who Trump deemed to be the administration’s “Crypto and AI Czar.” 

The Working Group is required to report to the president with its findings, as follows:

• Within 30 days of the date of the Order, the Working Group must identify all regulations, guidance documents, orders, or other items that affect the digital assets.
• Within 60 days of the date of the Order, each agency must submit recommendations with respect to whether each identified regulation, guidance document, order, or other item should be rescinded or modified, or, for items other than regulations, adopted in a regulation.
• Within 180 days of the date of the Order, the Working Group shall submit a report to Assistant to the President for National Economic Policy with regulatory and legislative proposals that advance the policies established in this order. The report will propose a Federal regulatory framework governing the issuance and operation of digital assets, including stable coins in the United States, a likely departure from the prior administration.  Additionally, the report will consider legislative provisions concerning market structure, oversight, consumer protection and risk management.

2.            The SEC Task Force

    On January 21, 2025, two days before President Trump signed the Executive Order, the SEC created its own Crypto Task Force (the “Task Force”). The Task Force is “dedicated to developing a comprehensive and clear regulatory framework for crypto assets” and chaired by Hester Peirce (a Trump appointed Commissioner to the SEC).   Pierce criticized the SEC’s past practice of relying primarily on enforcement actions to regulate crypto retroactively.  Therefore, “[t]he Task Force’s focus will be to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks and deploy enforcement resources judiciously.”

            On February 4, 2025, Commissioner Peirce issued a statement listing items the Task Force is currently working on:

• Security Status: The Task Force is examining the different types of crypto assets and their status as securities.
• Scoping Out: the Task Force is identifying areas that fall outside of the SEC’s jurisdiction and is inviting requests for no-action letters to help clarify jurisdiction.
• Coin and Token Offerings:  The Task Force is considering recommending temporary prospective and retroactive relief for coin or token offerings if certain information is provided and there is consent to the SEC’s anti-fraud jurisdiction. Such tokens would be deemed non-securities.
• Registered Offerings: The Task Force is considering a streamlined path to token registration.
• Special Purpose Dealer: The Task Force is exploring updates to the special-purpose broker dealer no action statement to more effectively address broker-dealers that custody crypto asset securities alongside crypto assets that are not securities.
• Custody Solutions for Investment Advisors:  The Task Force is looking to provide an appropriate custodial framework for advisors. 
• Crypto-Lending and Staking: The Task Force hopes to provide clarity on whether crypto-lending and staking programs are covered by securities law.
• Crypto Exchange-Traded Products: The Task Force will work to clarify the approach used when considering SRO applications to list new products.  
• Clearing Agencies and Transfer Agents:  The Task Force hopes to improve the intersection of crypto, clearing agency and transfer rules.
• Cross-Border Sandbox: The Task Force understands many crypto projects are international and will consider ways to facilitate cross-border experimentation.

3.            The SEC Ends Investigations, Dismisses Charges and Shares its Views that Meme Coins Are Not Securities.

Seemingly in line with the SEC’s criticism of past enforcement actions, the SEC recently ended investigations into Robinhood’s crypto business and into OpenSea without taking further action.  On February 21, 2025, the SEC informed Robinhood Crypto that it would not move forward with an enforcement action. The Form 8-K disclosing the Well’s notice that Robinhood received in May of 2024, which alleged violations of Sections 15(a) and 17 of the Securities Exchange Act of 1934, can be found here.  Also on February 21, 2025, the Co-founder of Opensea, the world’s largest market place for non-fungible tokens announced the SEC was closing its investigation without categorizing NFTs as securities. 

Additionally, on February 21, 2025, Coinbase, America’s largest crypto exchange, announced that the SEC agreed in principle to dismiss charges against Coinbase. The lawsuit against Coinbase was filed in 2023 and accused Coinbase of operating as an unregistered securities exchange, broker, and clearing agency.  More information about the Coinbase dismissal can be found here.

In line with ending the above enforcement actions, on February 27, 2025, the SEC announced that “neither meme coin purchasers nor holders are protected by the federal securities law” because meme coins “do not involve the offer and sale of securities under the federal securities law.” Therefore, “persons who participate in the offer and sale of meme coins do not need to register their transactions with the Commission under the Securities Act of 1933.”

4.            OKX Pleads Guilty.

Despite the flurry of closed investigations, on February 24, 2025, one of the largest derivatives and spot crypto exchanges pled guilty to one count of operating an unlicensed money transmitting business and agreed to forfeit over $420.3 million and pay an additional fine of more than $84.4 million.  The Complaint filed against OKX can be found here.

Prosecutors faulted OKX for allowing U.S. investors to trade on the exchange, which did not have adequate anti-money laundering policies and procedures, despite its official ban against U.S. customers.  

Under OKX’s plea agreement, OKX’s United States affiliate—OKCoin USA, Inc. can continue to conduct business with U.S. investors.  OKX’s cooperation with the investigation reduced its fine range, and OKX is not subject to a monitor’s supervision. 

5.            Next Steps

When issuing a statement regarding the OKX plea, U.S. Attorney Matthew Podolsky warned financial institutions that there will be “consequences for financial institutions that avail themselves of the U.S. markets but violate the law by allowing criminal activity to continue.”  When looked at in combination with the dismissal of the lawsuit against Coinbase and completion of investigations of Robinhood and Opensea, it appears that the Commission will continue to prosecute anti-money laundering matters and anti-fraud generally, but may reduce cases for failure to register as a broker, dealer or exchange until regulatory clarity is achieved. 

Notwithstanding a decline in enforcement, private class action should remain robust. For example, on January 14, 2024, OKX was named in a class action suit that alleged OKX allowed criminals to launder stolen funds.  Plaintiff Alister Watt noted that a “material portion” of his stolen crypto ended up in an OKX account, and that OKX and certain affiliates failed to apply the necessary anti-money laundering procedures and, therefore, should be liable.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.