Jared Marx is an attorney at Washington, DC law firm Harris, Wiltshire & Grannis. He advises companies about bitcoin-related regulatory law and represents companies and individuals in civil and criminal proceedings.
Here, he discusses what cryptocurrency businesses should consider if they find themselves face-to-face with a US government subpoena, interview or search warrant.
Cryptocurrency businesspeople are a hearty bunch. They deal not only with the ordinary anxieties of running a startup, but also with a lack of clarity on a whole range of fundamental legal issues. (Remember when people were still asking whether bitcoin was even legal?)
One upshot of this is that a number of companies – including many who have tried hard to comply with applicable laws – have found themselves either receiving investigative subpoenas or subject to civil or criminal enforcement action.
The recent Ripple Labs fine, along with comments from FinCEN director Jennifer Shasky Calvery, suggest that this trend is on the upswing.
Since regulatory uncertainty is likely to persist for some time, here’s a primer on things to consider when the US government knocks at your door (either figuratively or literally).
Virtually every US government agency has the power to demand documents from businesses that operate under its regulatory supervision. Generally speaking, the way that the government does this is by issuing a subpoena (sometimes styled as the essentially-identical 'civil investigative demand').
Importantly, while the government doesn't need to go to a judge (or anyone else) to issue a subpoena, an agency must go to a judge to enforce a subpoena. That means that when a party doesn’t respond to a subpoena, the agency must first convince a judge that it issued a valid subpoena before anyone will compel the target to produce documents or items.
However, when a party ignores a subpoena, the agency likely will go to a judge, and that will almost certainly make things worse. An agency who asks a judge to enforce a subpoena because it has received no response usually gets what it wants, even if the subpoena was overly broad.
Indeed, if there’s a criminal investigation in play, the agency may change its mind and seek a search warrant rather than a subpoena, and raid the offices where it’s looking for files. That’s definitely worse.
On the other hand, the fact that subpoenas aren’t self-enforcing also means that they’re negotiable.
Most agencies issue cookie-cutter subpoenas, asking for broad and often burdensome productions of documents. Truth be told, those agencies would rather not try to justify an overbroad subpoena to a judge. Just as often, they only issued a broad subpoena because they weren’t sure what they wanted in the first place.
The first step that experienced companies usually take after receiving a subpoena is to have their lawyer call the agency to ask what they’re really after. Especially in the cryptocurrency space, where government actors may or may not fully understand the technology, there’s a good chance of getting the government to agree to a 'narrowing letter', which limits what’s being asked for in the subpoena.
Only very seldom can lawyers convince the government to simply go away, but a narrowing letter often saves a lot of time and money by significantly limiting the subpoena’s reach.
When a subpoena is truly out of line, parties can also go to court to 'quash' (or cancel) the subpoena as improper or overly broad. But that’s a lot easier to do when the challenging party is the first one to the judge, and the agency hasn’t already been there complaining about how the target thumbed its nose at them.
US federal law makes it a felony to intentionally lie to government agents. It’s like being under oath any time you talk to a government agent – except that it’s actually worse: if you testify in a courtroom, a stenographer records your testimony in open court. But when you talk to an FBI agent, the only record of your conversation are the notes that the agent writes up back in their office.
So the first problem is obvious: the agent conducting the interview may hear only what they want to hear, or they may simply make honest – but ultimately harmful – mistakes in recording the interview.
Moreover, federal agents are permitted to, and regularly do, lie to suspects or witnesses when conducting an investigation. So the mere act of engaging in conversation with an agent can be treacherous.
Even if – and maybe especially if – a person has "nothing to hide", most defense lawyers will agree that the safest bet when an agent asks for an interview is to treat the agent respectfully and politely, but to decline an interview at that time.
A lawyer can then follow up with the agent, and if an interview truly is in the person’s best interest, the lawyer will also arrange to be present for it.
3. Search warrants
Finally, in criminal matters, the government sometimes skips subpoenas and gets a search warrant from a court.
Unlike a subpoena, a search warrant gives the government the power to search a party’s premises itself and remove items (including computers) listed on the warrant.
At the moment agents show up with a search warrant, the target can’t do much to stop the ensuing search. But many parties (and their lawyers) nevertheless stay for the whole search, because staying can help set the stage for what comes next. This is primarily because there are many laws about what constitutes a proper search, and sometimes a party’s eyewitness testimony describing a search can be helpful if the government does something wrong.
One risk of staying for the search is that this puts important players in the presence of government agents for a long time, which means that there’s more opportunity for agents to try to engage targets in conversation.
The challenge here is not only remaining disciplined about not engaging, but also continuing to be polite to the agents conducting the search. However, this is not an insurmountable task.
Another risk of staying for the search is that the government can ask a party who is present for permission to conduct searches beyond what’s in the search warrant. Consenting to that kind of enlargement is not required, and doing so is very seldom worth the associated risk of unintended consequences. Simply knowing this, however, reduces the risk that a party will thoughtlessly consent.
With some luck and ingenuity, most cryptocurrency businesses may hope to avoid unwanted government scrutiny. However US regulatory law (and, even more so, criminal law) is stunningly broad, and the consequences of an investigation gone wrong can be crippling.
So when luck’s not enough, smart lawyering and some preparation can make the difference between a government investigation that is a mild headache and one that is a train wreck.
Disclosure: This is not legal advice, and is not intended to establish an attorney-client relationship. You can reach Jared at email@example.com.
Door image via Shutterstock
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