On Black Friday 2019, the US Attorney’s Office for the Southern District of New York put out a press release announcing the arrest of a prominent Etherean — Virgil Griffith.
Manhattan U.S. Attorney Announces Arrest Of United States Citizen For Assisting North Korea In…
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, John C. Demers, the Assistant…
The Complaint raises only one charge — violation of International Emergency Economic Powers Act, 50 USC § 1705 (IEEPA). The Complaint is merely an accusation, and — by law — Griffith is presumed innocent unless and until proven guilty.
What follows is an objective analysis of the Complaint, looking at the facts most favorably to Griffith. The analysis also draws on some public record information. The purpose of this analysis is to draw some immediate and longer-term lessons about crypto law, blockchain utility, and personal responsibility.
[Usual Disclaimer: we have never met Griffith; this is not legal advice; etc.]
This criminal case is being handled by the Southern District of New York’s Office’s Terrorism and International Narcotics Unit. The crime allegedly took place in New York County.
Griffith was arrested at LAX on Thanksgiving Thursday, November 28, 2019 and appeared in federal court in Los Angeles on Friday, November 29, 2019.
Griffith is a 36 year-old Etherean (member of the global Ethereum blockchain developer/stakeholder community). He has a doctorate from California Institute of Technology (CalTech) in computational and neural systems.
Griffith is affiliated with the Switzerland-based nonprofit Ethereum Foundation (EF). Like many researchers at the EF, he has run different projects — ranging from Ethresear.ch (a popular community research forum), to compliance research and analysis looking at blockchains under, say, Sharia law.
Representing the United States are:
- Brandon M. Cavanaugh, Special Agent, FBI Counterintelligence Division
- Geoffrey S. Berman (United States Attorney for the Southern District of New York)
- John C. Demers, Assistant Attorney General for National Security
- John Brown, Assistant Director of the FBI, Counterintelligence Division
- William F. Sweeney Jr., Assistant Director-in-Charge of FBI New York Field Office
- Kimberly Ravener, Assistant U.S. Attorney
- Michael K. Krouse, Assistant U.S. Attorney
- Kyle A. Wirshba, Assistant U.S. Attorney
- Christian Ford, Counterintelligence and Export Control Section
- Matthew J. McKenzie, Counterintelligence and Export Control Section
The International Economic Emergency Powers Act (IEEPA) is a federal statute that prohibits both imports from and exports to specific countries like Cuba and North Korea and is administered by the Treasury Department.
The IEEPA is one of three main export control regimes under U.S. law:
There are many reasons why multiple legal regimes and enforcement agencies overlap in the export control field. These different statutes (and regulations and orders and guidance documents adopted pursuant to the statutes) cover related but slightly different scope of regulated activity.
Crucially, different regimes give the government different remedial levers (with different standards of proof), including:
- civil penalties like monetary fines (with a lower preponderance of the evidence standard)
- administrative sanctions such as denial orders (which operate as de facto “blacklists” prohibiting American persons from contracting with blacklisted persons, with different evidentiary/formal standards)
- criminal penalties such as imprisonment and/or fines (which are accompanied by moral culpability, and the highest evidentiary standard: beyond a reasonable doubt).
Of these, Griffith is alleged to have done a bad criminal deed, one that carries a maximum term of 20 years in prison.
How did Griffith allegedly commit his crime? Here’s the charge:
It’s important to work through these sources firsthand.
Beyond just this case, these are some of the formal authorities that get lumped under the broad umbrella term known as “North Korean sanctions” and/or “US sanctions against North Korea.”
IEEPA § 1705(a)
That’s not really helpful.
To get the object & purpose of the IEEPA we need to go back to 50 USC § 1701 (1977). The essence of this statutory scheme is this:
- the 95th US Congress gave the US President power to take certain economic measures (blocking transactions, seizing property, etc.) to deal with “unusual and extraordinary threat[s] with respect to which a national emergency has been declared.”
- President Jimmy Carter signed the IEEPA into law, effective December 28, 1977;
- the IEEPA is itself a part of the National Emergencies Act (NEA), which means that an emergency declared under the act must be renewed annually to remain in effect;
- USA PATRIOT Act amendments to the IEEPA included asset blocking provisions (§ 1702(a)(1)(B)), which permit the blocking of assets during the “pendency of an investigation.” This statutory change gave the Treasury’s Office of Foreign Assets Control the power to block assets without the need to provide evidence of the blocking subject’s wrongdoing nor to permit the blocking subject a chance to effectively respond to the allegations in court.
31 C.F.R. §§ 510.212(a)-(b)
This is a rule promulgated pursuant to the IEEPA that specifically prohibits transactions that cause violations of the IEEPA statute or rules promulgated pursuant to the IEEPA.
The list of lesser included versions mirrors the list in 50 USC § 1705. Notable expansions include the prohibition of transactions, as well as taking part in a group crime (aka ‘conspiracy’):
Executive Order 13466 (George W. Bush, 2008)
… is one of the two executive orders that form the basis of the complaint against Griffith. The whole order is just two pages (linked below).
Structurally, there’s a short preamble explaining why North Korea’s nuclear weapons program constitutes a national security threat to the US. The substance of the order are more narrow delegations of power to the Treasury Department and other federal agencies, which are tasked with promulgating rules to effectuate the order.
Executive Order 13722 (Barack Obama, 2016)
This order relating to North Korea is slightly longer than the one above. Here’s the full link, with a screenshot of one of the operative sections below.
What’s prohibited under this order? Practically any type of economic activity — including “indirect … exportation of goods, services or technology to North Korea.”
Here’s a screenshot:
Griffith allegedly committed his crime on or around April 26–27, 2019 when he travelled to attend and present at a Pyongyang Blockchain and Cryptocurrency Conference in North Korea, along with 100 other participants. Complaint ¶¶ 5, 15(g).
After this first mention, the Complaint’s short name for the conference is “DPRK Cryptocurrency Conference.” Id. Two things are significant here:
- narrative shift from tech conference → finance conference (the dropped reference to “blockchain”);
- narrative shift from city-wide conference → national conference (Pyongyang → DPRK);
According to ¶¶ 5 & 15(c), Griffith allegedly sought permission from the US State Department to attend this conference prior to traveling to North Korea. But the Complaint does not specify when Griffith sought the permission; nor does it specify when permission was denied. The facts, circumstances, and context surrounding Griffith’s request and denial are notably absent from the Complaint.
According to ¶ 15(d), Griffith allegedly communicated with a co-conspirator (CC-1) and a North Korean “diplomatic mission facility” in Manhattan to arrange travel to North Korea, including obtaining a visa.
The topic of Griffith’s presentation was: “Blockchain and Peace.”
Why is the US government prosecuting a US citizen who traveled to North Korea to present on blockchain technology? The short answer is: “cryptocurrency.”
The slightly longer answer is that this presents a relatively easy-to-prosecute case with the potential to create binding judicial precedent recognizing Eth as money and/or a financial instrument. Viewing the allegations in a light most favorable to Griffith, the narrative that emerges is that of a crypto-anarchist who is ‘flaunting’ authority to help a ‘rogue regime’ circumvent targeted financial sanctions.
Here are the most damning allegations in the Complaint. ¶¶ 15(i) & 15(j):
Whoever Co-Conspirators 1 & 2 end up being, the Complaint paints a picture of Griffith as a technical consigliere to sanctions dodgers.
Most worrisome, the Complaint alleges at several points that Griffith was conscious about the (il)legality of his conduct:
- “Griffith […] acknowledged that [X] would violate sanctions against [North Korea].” Complaint ¶ 15(j).
- “Griffith knew that it was illegal to travel to [North Korea] and so sought permission from the U.S. Department of State [which was denied].” Complaint ¶ 15(c).
We must remind ourselves that these are allegations, and thus, will need to be proven. It is not clear from the Complaint whether prosecutors have ‘smoking gun’ evidence from Griffith.
However, statements he allegedly made in his May 2019 meeting with the FBI and phone records that he voluntarily shared in November 2019 show a strangely binary approach to law and legality that simply will not look good, if true. See eg Complaint ¶ 16(b):
7. So, what?
- Gather More Facts! We have no way of gauging Griffith’s intent here, nor is that our job; it’s up to triers of fact to decide these issues of fact; but if there are new developments that can teach us something valuable, we’ll dive deeper;
- Just Say No to Binary Law! Viewing inherently complex legal issues and regimes (such as ‘export control laws’ and/or ‘targeted financial sanctions regimes’ and/or ‘broad sectoral sanctions regimes’) as binary choices plays directly into gray traps laid by regulators, governors, and enforcers. Gray areas in the law are not a bug in the system; they are the system.
- Who are Co-Conspirator 1 & 2? Who are Individual 1 & 2? It wouldn’t be least bit surprising if Agent Cavanaugh had a folder with screenshots of many other high-profile Ethereans taking categorical legal stances on these (and/or other) legal messes. It also wouldn’t be surprising if we never learn the identity of some alleged co-conspirators. This type of strong social ‘encryption’ is a powerful governance lever.
- Crypto Law is Real. US law enforcement is global law enforcement. Actual vectors of enforcement aren’t ever fully known, even to high-ranking US law enforcement officials. See eg Russiagate. Many background legal forms, norms, and processes, like citizenship, are very difficult, if not outright impossible, to ‘code around’ and/or revoke. The proliferation of clandestine legal systems is something that blockchain folks should understand in basic intuitive terms. Yet paragraphs like 16(b) — if true — show a superficial and static vision of law that severely restricts developers’ freedom of action. Literally. Especially because sealed parts of these investigations and complaints become potent levers of future influence (and not only against the individual being charged, but also their friends, associates, colleagues, etc.).
- Blockchain, Not Crypto: In terms of precedent, the most important part of this case will be the way in which the government decides to legally classify “Cryptocurrency-1” (Eth/Ether/Ethereum). In light of global governance trends, the best thing prosecutors could do here (from the perspective of US policy) is to seek and obtain judicial affirmation of their jurisdictional reach, but leave substantive classification/taxonomy questions relatively open. There is no need for US regulators/prosecutors to squeeze the round peg of blockchain forms (like Eth) into the square hole of “finance” or even “property.” In fact, from adjudicatory/regulatory perspectives, doctrinal freedom of maneuver seems especially desirable given the rapidly-shifting nature of the underlying technologies and attendant policies.
- Strategy > Tactics. As a pleading move, it was a smart prosecutorial tactic to characterize Griffith’s presentation as a cryptocurrency tutorial addressed to dangerous adversaries. But as a long-term governance strategy, investigators and prosecutors hopefully see that folks like Griffith and networks like Ethereum aren’t part of the problem.
Radical transparency of the sort offered by Ethereum isn’t just some vague “solution” — it’s quite literally the future of law and law enforcement. Globally.
Including in Russia, China, and … North Korea.
Especially in places like Russia, China, and North Korea.
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[September 26, 2021 Update: links for the two executive orders mentioned above are no longer working — a problem described in the conclusion above. For example, the original link was:
https://www.treasury.gov/resource-center/sanctions/Documents/nkeo.pdf (which now redirects to a GoogleDrive, of course).
Here’s ere’s a new link to the ‘official’ US Treasury repo for these materials: https://home.treasury.gov/system/files/126/nkeo.pdf
Rather than ‘fixing’ the links (where the fixes will inevitably get broken), will leave the links corrupted and instead post screenshots of the relevant Executive Orders; the key point is that ‘fixing’ the links is a band-aid that does not solve the underlying problem]