DOJ Dismantles Crypto Enforcement Unit in Historic Policy Reversal: “Ending Regulation by Prosecution”

In what analysts describe as the most significant shift in U.S. digital asset enforcement policy in a decade, Deputy Attorney General Todd Blanche issued a memorandum on April 7, 2025, formally ending the Department of Justice’s practice of “regulation by prosecution” and ordering the immediate disbandment of the National Cryptocurrency Enforcement Team (NCET).

The memo, which has quickly become known across legal circles as the “Blanche Memo,” represents a sharp departure from the Biden-era approach to cryptocurrency oversight. Where previous leadership at the DOJ treated regulatory violations by crypto companies as criminal matters worthy of federal prosecution, the new directive instructs prosecutors to focus exclusively on individuals who use digital assets to commit actual crimes — terrorism financing, drug trafficking, human trafficking, and organized fraud.

TL;DR

• Deputy AG Todd Blanche issues the “Blanche Memo” on April 7, 2025, ending “regulation by prosecution” of digital assets
• The National Cryptocurrency Enforcement Team (NCET), established in 2022, is formally disbanded
• DOJ will no longer pursue cases against crypto exchanges, mixing services, or wallet providers for regulatory violations alone
• Prosecutors redirect focus to individual criminals exploiting digital assets for terrorism, narcotics trafficking, and organized crime
• The policy aligns with Executive Order 14178 and the Trump administration’s pro-innovation digital asset stance

A Seismic Shift in Enforcement Philosophy

The NCET was created in 2022 under the Biden administration with the explicit mission of investigating and prosecuting criminal activity involving cryptocurrency. Over its roughly three-year lifespan, the unit pursued high-profile cases against exchanges, mixing services, and decentralized finance protocols — often treating compliance failures as criminal offenses rather than regulatory matters.

The Blanche Memo characterizes that approach as “reckless” and “ill conceived and poorly executed,” arguing that the DOJ effectively attempted to superimpose regulatory frameworks on digital assets through criminal prosecution — a role the memo asserts belongs to agencies like the SEC and CFTC, not the Justice Department.

Under the new framework, federal prosecutors receive clear charging guidance. Cases involving unlicensed money transmission, Bank Secrecy Act violations, and other technical regulatory failures by cryptocurrency entities will no longer be pursued unless prosecutors can demonstrate willful violations with clear evidence of criminal intent. The DOJ will no longer target virtual currency exchanges, mixing and tumbling services, and offline wallets for the actions of their end users or unwitting regulatory violations.

What Prosecutors Will Actually Pursue

The memo does not signal a free pass for bad actors in the crypto space. Rather, it redirects prosecutorial resources toward two categories of criminal conduct.

First, the DOJ will prioritize cases involving individuals who victimize digital asset investors — embezzlement and misappropriation of customer funds on exchanges, digital asset investment scams, and hacking of exchange infrastructure. These are traditional fraud and theft cases where digital assets happen to be the medium.

Second, the Justice Department will aggressively pursue individuals who use cryptocurrency to facilitate transnational criminal activity. This includes narcotics trafficking, terrorism financing, human trafficking, organized crime operations, cartel financing, and hacking campaigns. The memo specifically highlights the increasing reliance on digital assets by certain criminal elements and aligns enforcement priorities with the administration’s focus on transnational criminal organizations and designated global terrorists.

Implications for Ongoing Cases

The policy shift raises significant questions about the trajectory of pending prosecutions. Most notably, the DOJ has Roman Storm, co-founder of the Tornado Cash mixing protocol, scheduled for trial later in 2025 on charges including conspiracy to launder money and sanctions violations. The case has drawn intense scrutiny because it tests whether developers can be held criminally liable for open-source code used by others to commit crimes.

Legal analysts note that while the Blanche Memo signals a reduced appetite for prosecuting platforms, the policy explicitly carves out 18 U.S.C. § 1960(b)(1)(C), meaning that knowingly transmitting funds derived from or intended for illegal activities remains fully prosecutable. This suggests that cases with strong evidence of intentional criminal facilitation will continue regardless of the broader policy shift.

Industry Reaction and Market Context

The announcement arrives amid a broader pro-crypto regulatory recalibration across the federal government. Bitcoin trades at approximately $79,235 on the day of the memo’s release, with Ethereum at roughly $1,555, reflecting a market that has already priced in much of the administration’s friendlier posture toward digital assets.

Industry groups have largely praised the move, arguing that the previous approach created a chilling effect on innovation by forcing legitimate crypto businesses to operate under the threat of criminal prosecution for conduct that, in traditional finance, would merit only civil regulatory action. The Blockchain Association and other trade organizations have described the memo as a necessary correction that properly aligns the DOJ’s criminal enforcement role with its institutional mandate.

Critics, however, warn that disbanding the NCET removes a critical deterrent against sophisticated financial crime in the digital asset space. Some former DOJ officials have expressed concern that the policy could embolden bad actors who will interpret the shift as a weakening of enforcement resolve, particularly in areas like sanctions evasion and money laundering through decentralized protocols.

The Bigger Regulatory Picture

The Blanche Memo does not exist in isolation. It forms part of a coordinated regulatory realignment that includes the SEC’s crypto task force, which on the very same day received formal written input on comprehensive stablecoin regulation frameworks. The SEC’s Division of Corporation Finance had just days earlier issued groundbreaking guidance declaring that redeemable, USD-pegged stablecoins are not securities under federal law.

Together, these developments signal that the federal government is systematically moving away from treating the cryptocurrency industry as inherently suspect and toward a framework where digital assets are regulated based on their actual characteristics and use cases. For the DOJ, that means returning to its core mission of prosecuting crime rather than filling perceived gaps in the regulatory architecture.

Why This Matters

The disbandment of the NCET and the end of “regulation by prosecution” represents a foundational shift in how the United States government approaches digital asset enforcement. For crypto businesses operating in good faith, it removes the existential threat of criminal prosecution for regulatory ambiguity — a threat that has driven numerous startups offshore or out of business entirely. For law enforcement, it sharpens focus on genuine criminal conduct rather than compliance technicalities. For investors and consumers, it signals a maturation of the regulatory environment where digital assets are treated with the same principle-based approach as other financial instruments. The long-term impact will depend on whether this recalibration successfully balances innovation incentives with the ongoing need to combat sophisticated financial crime.

Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or investment advice. The regulatory landscape for digital assets continues to evolve rapidly, and readers should consult qualified professionals for guidance specific to their circumstances.