Crypto crime is any criminal offense committed using cryptocurrency or targeting digital asset holders, and federal prosecutors handle it under the same fraud, money laundering, tax, and sanctions statutes that cover traditional finance. Wire fraud alone carries up to 20 years in federal prison, and money laundering can add another 20 on top. The technology is new; the legal framework isn’t. Blockchain transactions people assume are anonymous turn out to be traceable, and the penalties for getting caught are severe.
Common Fraud Schemes
Rug pulls are the clearest example. Developers launch a crypto project, pull in investor money, then drain the funds into private wallets and disappear. Prosecutors charge these as wire fraud because the scheme ran on internet communications built around false promises. The penalty is up to 20 years in prison and fines, rising to 30 years if the scheme affects a financial institution.1Office of the Law Revision Counsel. 18 USC 1343 – Fraud by Wire, Radio, or Television
Pig butchering works differently. The scammer spends weeks or months building a personal relationship with the victim through dating apps or social media before steering the conversation toward a can’t-miss crypto investment. The victim deposits funds into a platform the scammer controls, watches fake returns climb on a dashboard built to encourage larger deposits, and eventually finds out the platform was never real. These schemes are effective because they exploit trust rather than any technical vulnerability.
Phishing targets people who already hold crypto. The victim clicks a link mimicking a legitimate exchange login, enters credentials, and hands control of the wallet to the attacker. Taking over an account this way violates the Computer Fraud and Abuse Act, which criminalizes unauthorized access to a computer system to obtain something of value. A first offense carries up to five years in prison; a second doubles that to ten.2Office of the Law Revision Counsel. 18 US Code 1030 – Fraud and Related Activity in Connection With Computers
What these schemes share is that victims have no FDIC insurance or bank fraud protection to fall back on. Once crypto leaves your wallet, recovery depends on whether law enforcement can trace and seize the funds before they’re converted or moved offshore. The permanent, public nature of blockchain records helps investigators; the speed at which stolen funds can be shuffled through dozens of wallets works against them.
Money Laundering With Digital Assets
Converting stolen crypto into clean-looking funds is a federal crime carrying up to 20 years in prison and fines of $500,000 or twice the value of the property involved, whichever is greater.3Office of the Law Revision Counsel. 18 USC 1956 – Laundering of Monetary Instruments Prosecutors have to show the defendant knew the funds came from illegal activity and conducted a financial transaction to hide their origin.
Mixing services are the preferred tool. They pool funds from many users, shuffle them through a web of intermediate wallets, and return tokens that are harder to link to the original crime. The process mirrors traditional layering techniques used in cash laundering, just executed on a blockchain. Federal enforcement actions have targeted mixing services that fail to register as money services businesses or implement anti-money laundering controls. The Bank Secrecy Act requires businesses that transmit convertible virtual currency to register with FinCEN and file suspicious activity reports, same as any other money transmitter.4FinCEN.gov. Application of FinCENs Regulations to Persons Administering, Exchanging, or Using Virtual Currencies
Investigators use forensic blockchain analysis to de-mix these transactions, tracing funds backward to connect them to the underlying theft. The technology has improved enough that mixing is no longer a guaranteed anonymity shield. Several high-profile seizures involved funds that had passed through multiple mixers before investigators reassembled the trail.
Tax Evasion and Reporting
The IRS treats cryptocurrency as property, not currency. Every sale, trade, or exchange triggers a taxable event, and you owe capital gains tax on any increase in value since you acquired the asset.5Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions That includes swapping one cryptocurrency for another. Receiving crypto as payment for goods or services is ordinary income, taxable at fair market value on the day you receive it.
Starting in 2025, crypto brokers and exchanges must report gross proceeds from sales on Form 1099-DA, similar to how stockbrokers report on Form 1099-B. Beginning January 1, 2026, brokers must also report cost basis on certain transactions, making it much harder to underreport gains. Every federal income tax return now carries a mandatory yes-or-no question asking whether the taxpayer received, sold, exchanged, or otherwise disposed of any digital asset during the year.6Internal Revenue Service. Digital Assets
Hiding crypto gains on purpose is a felony. Tax evasion carries up to five years in prison and fines of up to $100,000 for individuals or $500,000 for corporations.7Office of the Law Revision Counsel. 26 USC 7201 – Attempt to Evade or Defeat Tax Filing a return that omits crypto income or falsely states a cost basis is a separate felony punishable by up to three years in prison.8Office of the Law Revision Counsel. 26 USC 7206 – Fraud and False Statements Criminal referrals usually involve evidence of deliberate concealment, like undisclosed wallets on foreign exchanges or privacy coins used to obscure holdings. Honest math errors are far more likely to trigger a civil audit than a criminal case.
Structuring Transactions
Breaking up transactions into smaller amounts to stay below reporting thresholds is a federal crime called structuring. You don’t have to be laundering money or evading taxes for this to apply. The act of splitting transactions specifically to dodge reporting requirements is illegal on its own.9Office of the Law Revision Counsel. 31 USC 5324 – Structuring Transactions to Evade Reporting Requirement Prohibited Investigators treat a pattern of transactions sitting just below a threshold as strong evidence of intent to evade.
Foreign Accounts and FBAR
If you hold crypto on a foreign exchange, you might expect to file a Report of Foreign Bank and Financial Accounts. Under current FinCEN rules, a foreign account holding only virtual currency is not reportable on the FBAR. If that same foreign account also holds traditional assets like cash or securities, the entire account becomes reportable when the combined value of all your foreign financial accounts exceeds $10,000 at any point during the year.10FinCEN.gov. Notice – Virtual Currency Reporting on the FBAR FinCEN has signaled interest in expanding FBAR coverage to virtual currency accounts, so the rule could change.
Sanctions and Ransomware Payments
Sending cryptocurrency to a person, wallet, or entity on OFAC’s Specially Designated Nationals list is a federal sanctions violation, even if you had no idea the recipient was sanctioned. OFAC enforces sanctions on a strict liability basis, which means ignorance is not a defense.11U.S. Department of the Treasury. Sanctions Advisory – Potential Sanctions Risks for Facilitating Ransomware Payments Civil penalties can reach roughly $377,700 per violation under current inflation-adjusted figures, and willful violations carry criminal penalties that are substantially higher.12Federal Register. Inflation Adjustment of Civil Monetary Penalties
Ransomware creates a particularly dangerous trap. A company whose systems are locked faces enormous pressure to pay and restore operations, but if the attacker is linked to a sanctioned country or group, the payment itself exposes the company to OFAC enforcement. OFAC has designated specific cryptocurrency wallet addresses on its sanctions list since 2018, and mixing services that facilitate payments to sanctioned actors have also been targeted. Companies that maintain a sanctions compliance program, contact OFAC before paying, and voluntarily self-disclose are more likely to receive favorable treatment if a violation occurs.11U.S. Department of the Treasury. Sanctions Advisory – Potential Sanctions Risks for Facilitating Ransomware Payments
If your cryptocurrency is blocked by OFAC because it’s connected to a sanctioned transaction, you need to apply for a specific license from OFAC to have the funds released. A license is required even if you decide not to proceed with the original transaction. Your exchange will not release the funds until it receives proof of the license.
Which Agencies Investigate
No single agency owns crypto enforcement. Jurisdiction depends on the type of crime, and most cases involve coordination among several agencies.
The Department of Justice prosecutes the most serious cases. DOJ previously operated a dedicated National Cryptocurrency Enforcement Team, but that unit was disbanded in April 2025.13U.S. Department of Justice. DAG Memorandum – Ending Regulation by Prosecution Crypto matters are now handled by the Criminal Division’s existing sections, including the Computer Crime and Intellectual Property Section and the Money Laundering and Asset Recovery Section.
The Securities and Exchange Commission has authority over digital assets that qualify as securities. When a token offering looks like an investment contract, the SEC treats it as an unregistered stock offering and pursues the promoters for violating registration and disclosure rules.14U.S. Securities and Exchange Commission. Statement on Cryptocurrencies and Initial Coin Offerings The Commodity Futures Trading Commission covers the other side: fraud and price manipulation in spot crypto markets and in derivatives contracts tied to digital assets like bitcoin and ether.15Commodity Futures Trading Commission. Digital Asset Frauds
The FBI is the lead federal agency for cyberattacks and runs the Internet Crime Complaint Center, the main intake point for victim reports.16Federal Bureau of Investigation. What We Investigate The U.S. Secret Service also plays a significant role through its Cyber Fraud Task Forces, which partner with other agencies, prosecutors, and private industry to target transnational cybercrime networks exploiting financial payment systems and digital assets.17U.S. Secret Service. Cyber Investigations
Getting Stolen Crypto Back
Federal prosecutors can seize cryptocurrency connected to criminal activity through civil forfeiture, even before anyone is convicted. The government files a legal action against the property itself, arguing it represents proceeds of a crime. Proceeds under federal forfeiture law covers anything obtained directly or indirectly from the offense, and courts have applied this broadly to digital assets.18Office of the Law Revision Counsel. 18 USC 981 – Civil Forfeiture In June 2025, the Secret Service announced what it called the largest-ever seizure of funds tied to crypto confidence scams, filing a civil forfeiture complaint against more than $225 million in cryptocurrency traced through blockchain analysis.19U.S. Secret Service. Largest Ever Seizure of Funds Related to Crypto Confidence Scams
When a defendant is convicted of a property crime or fraud, federal law generally requires the court to order restitution to victims. If the stolen cryptocurrency can’t be returned, restitution is calculated as the greater of the asset’s value on the date it was stolen or its value on the date of sentencing.20Office of the Law Revision Counsel. 18 USC 3663A – Mandatory Restitution to Victims of Certain Crimes That formula is supposed to account for appreciation. If your stolen bitcoin tripled in value between the theft and sentencing, the restitution order should reflect the higher number. In practice, collecting on a restitution order depends on whether the defendant has seizable assets, which is why forfeiture of the proceeds before trial matters so much.
One boundary worth knowing: if your losses come from an exchange collapse rather than a theft, the recovery path is bankruptcy, not forfeiture, and it rarely goes well for customers. The Securities Investor Protection Corporation, which covers up to $500,000 in securities held by a failed brokerage, does not protect unregistered digital assets.21SIPC. What SIPC Protects In bankruptcy, customers whose exchange terms of service gave the exchange control over deposited assets have generally been classified as unsecured creditors, who get paid last.
How to Report Crypto Crime
The Internet Crime Complaint Center, run by the FBI, is the primary intake point for reporting crypto fraud and theft to federal law enforcement.22Internet Crime Complaint Center. Internet Crime Complaint Center The online form asks for a written narrative of the incident along with supporting details. Before filing, gather everything you can:
- Transaction hashes (often called TXIDs) for every transaction involved. You can find them through any blockchain explorer by searching your wallet address.
- Wallet addresses, both yours and any addresses the stolen funds were sent to.
- Exact date and time of each transaction, including the time zone used by your exchange or platform.
- Screenshots or exports of emails, chat messages, social media conversations, and any other contact with the suspected scammer.
- The name of the exchange or decentralized platform where the transaction originated, which helps investigators determine which entities to subpoena.
- Screenshots of fraudulent sites or ads, saved before the scammer takes them down.
After you submit, IC3 generates a complaint number that serves as your reference for all future contact with law enforcement. The system routes your report to the appropriate FBI field office or partner agency based on the type of crime. Federal agents may follow up for additional interviews or documentation. The timeline from filing to an active investigation varies widely depending on the amount lost, the number of victims, and the complexity of the blockchain trail. Report quickly. Fast reporting improves the odds of asset recovery because investigators have a better chance of tracing funds before they’re converted to cash or moved through too many intermediary wallets to follow.