The $4.4 billion Binance settlement — an historic deal struck to resolve sweeping financial crime charges against the world’s largest digital currency exchange — underscores the huge challenge crypto firms face in their quest for legitimacy. As Washington scrutiny of crypto crime ramps up, the industry is increasingly flexing a not-so secret weapon: a small army of former defense, national security and law enforcement officials. Coinbase, the largest U.S. crypto exchange, announced this month that former Defense Secretary Mark Esper and other national security experts had joined its “global advisory council,” which also includes Bush counterterrorism adviser Frances Townsend. The Blockchain Association last week sent to Capitol Hill a letter signed by 40 former military officials, ex-intelligence officers and nat sec professionals, including alumni of Treasury, the White House and DHS. They downplayed illicit activity in crypto relative to traditional finance and argued against policies that would drive digital asset players overseas — a frequent industry talking point. The group is planning a Hill visit next Tuesday. The ties between crypto and law enforcement aren’t new, and it’s something that’s also prevalent across the old-school banking sector. But the crypto industry is showcasing its relationships with former officials at a critical moment as lawmakers and the Biden administration focus on the role digital currency has played in financing Hamas and other terrorist organizations. Sen. Elizabeth Warren, an outspoken crypto critic, has run with the issue, rallying more than 100 lawmakers last month to ask the White House and Treasury to crack down. Crypto’s recruitment of the former officials is triggering its own scrutiny from industry watchdogs. Henry Burke of the Revolving Door Project told MM that the problems presented by anti-terror officials taking posts with crypto firms are three-fold: They know the weaknesses of law enforcement, they legitimize the industry to their ex-coworkers and their moves incentivize those looking for post-government work to take a softer touch. “This is of even greater concern when the situation is reversed and former cryptocurrency executives fill government posts,” Burke said. Sen. Warren weighed in on the industry hiring ex-officials, telling MM: “Lawmakers should reject this influence-peddling and focus on keeping the American people safe by passing bipartisan, anti-money laundering legislation.” Industry representatives pushed back hard against the criticism that former officials would help companies skirt the law. True Ventures partner and former DHS acting general counsel Gus Coldebella, who signed the Blockchain Association letter, said the suggestion is “scurrilous and wrong.” “Former law enforcement and other government officials play a critical role across the private sector in helping companies comply with their legal obligations,” said one-time FinCEN chief digital currency adviser Michele Korver, who is now head of regulatory affairs at Andreessen Horowitz’s a16z crypto. “It is a critical element to ensure responsible innovation in the web3 space.” While some crypto advocates are flaunting their law enforcement bona fides, others are calling into question the fundamental framework for policing financial crime in the U.S. The think tank Coin Center last week released a report raising doubts about the constitutionality of the Bank Secrecy Act, which gave officials the authority to combat money laundering. “There is no tension here,” Coin Center spokesperson Neeraj Agrawal said, when MM asked about a possible disconnect with the industry’s recruitment of the former officials. “We support strong national security but it has to be constitutional, otherwise what are we defending?” Happy Thanksgiving — MM will be back Monday. What should we cover next week? Send tips to zwarmbrodt@politico.com and ssutton@politico.com.
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