Speaking of blockchain technology: When does tech talk become a crime?

The United States District Court for the Southern District of New York recently explained how providing a talk on the wrong subject to the wrong people in the wrong place can lead to criminal culpability. In United States v. Griffith, 20-cr-15 (S.D.N.Y. Jan. 27, 2021), United States District Judge P. Kevin Castel rejected a challenge to an indictment charging a US citizen, Virgil Griffith, with conspiring to violate the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. §§ 1701-1706, in regard to US sanctions against North Korea by giving a talk in Pyongyang on blockchain technology and cryptocurrency.

Griffith was an employee of the Ethereum Foundation, which supports the Ethereum blockchain. The Ethereum platform has been and can be used to support numerous cryptocurrencies and initial coin offerings. Such cryptocurrencies and coins can be used to transfer value outside the purview of conventional banking structures, often with near if not total anonymity.

The indictment against Griffith centered on a presentation he made at a cryptocurrency conference in North Korea concerning possible applications of blockchain technology. Prior to this conference Griffith had been interested in establishing an Ethereum environment in North Korea, at one point texting a colleague that "we'd love to make an Ethereum trip to [North Korea] and setup an Ethereum node. . . . It'll help them circumvent the current sanctions on them." He also sent texts to a colleague speculating that while he was not sure why North Korea was interested in cryptocurrencies, it was "probably avoiding sanctions."

Despite the State Department's denial of a request Griffith made for permission to travel to North Korea to speak at the cryptocurrency conference about "the applications of blockchain technology to business and anti-corruption," Griffith nevertheless was able to secure a visa from North Korea's mission to the UN in New York and spoke at the conference. Judge Castel determined that the presentation constituted the prohibited export of a service to North Korea, a country that is the subject of comprehensive US sanctions. He also held that the statutory and regulatory exemption for "informational materials" would apply only if the presentation already had been fully created and in existence by the date of the presentation; and that the charge did not violate Griffith's right to free speech.

No money required

The central issue Griffith raised in his motion to dismiss was whether his presentation could be considered a prohibited export of services to North Korea. The US sanctions on North Korea, like other comprehensive US sanctions regimes, prohibit the export of services to the sanctioned country. See Exec. Order 13722, 81 Fed. Reg. 14943 (March 15, 2016); 31 C.F.R. § 510.206(a). Griffith argued that his presentation could not constitute services because he was not paid. Relying on United States v. Banki, 685 F.3d 99 (2d Cir. 2012), Judge Castel rejected the contention that the receipt of a fee is a necessary element of a service. The Banki court had rejected any fee requirement, relying on the dictionary definition of "service" as well as policy considerations: if the prohibited service required a fee, parties otherwise would be able to provide uncompensated assistance to persons subject to sanctions without any consequences. In other words, speech that is literally free can constitute a service under US sanctions laws and regulations.

Exemption unavailable

US sanctions on North Korea, like other US sanctions programs, exempt informational materials from the prohibition on the export of services, and Griffith argued that his conduct fell within the exemption. The applicable Office of Foreign Assets Controls' regulation, however, limits the exemption to materials "fully created and in existence at the date of the transactions." 31 C.F.R. § 510.213(c)(2).

Judge Castel stated that in applying this exemption "the key distinction rests between informational materials that are widely circulated in a standardized format and those that are bespoke" (quoting United States v. Amirnazmi, 645 F.3d 564, 587 (3d Cir. 2011). While Griffith argued that his presentation was nothing more than "high-level publicly available information" without substantive alteration, and consisted of only "general articles in the public domain" and "very general information . . . available on the Internet," the government claimed to have evidence that Griffith drew diagrams on a whiteboard while speaking and concluded his time with a brief question-and-answer session. Judge Castel concluded that the jury would need to evaluate this factual dispute to evaluate whether Griffith's presentation was fully created and in existence at the date of the presentation. The court did not address the separate issue of whether the exemption was unavailable to Griffith because of its inapplicability to "business consulting services."

The impact of charging conspiracy

Whatever the merits of these two issues that Griffith had raised, Judge Castel concluded that the indictment should survive even if the presentation did not constitute a service or if the informational materials exception applied. This was because Griffith was charged with a conspiracy to violate IEEPA, not a substantive violation of IEEPA. The government charged that Griffith and his co-conspirators agreed to advise the North Koreans on how "to evade and avoid sanctions by using blockchain and cryptocurrency technologies" and that "Griffith's speaking engagement at the April 2019 conference was a major step in a long-term plan to persuade and assist [North Korea] in using Ethereum to avoid sanctions and launder money." The indictment alleged that the presentation was simply one action in furtherance of a conspiracy that extended from August 2018 through November 2019 (seven months after the speaking engagement). The act in furtherance of the conspiracy did not itself need to be illegal.

Free speech vs. compelling governmental interests

Judge Castel also rejected Griffith's contention that the indictment as applied to him violated his First Amendment right to free speech. The court noted the practical difficulty in making an as-applied challenge to a conspiracy charge in a pretrial setting and concluded that the regulatory scheme as applied to Griffith did not violate the First Amendment because it served a compelling foreign policy interest of the United States — maintaining national security — while imposing the least restrictive burden on speech. The court determined that the regulatory scheme is narrowly tailored to meet this compelling interest because it is aimed at a designated country; it exempts information or informational materials from its coverage; it implements a licensing scheme that permits US persons to apply for authorization to provide services; and it requires the government to prove willful misconduct beyond a reasonable doubt.

The judge stressed that Griffith's challenge to his indictment "has nothing to do with advocacy" but rather with knowingly and willfully participating in a conspiracy to provide services to North Korea. The court concluded that even under a strict scrutiny approach the regulatory scheme as applied to Griffith served a compelling foreign policy interest of the United States and imposed the least restrictive burden on speech. Judge Castel pointed out that "[s]ervices by their nature are intangible and are often rendered through the words of the service-provider, whether lawyer, accountant, financial advisor or technology advisor." Thus, as an "alternative holding," the Court concluded that because speech concerning cryptocurrency transactions or blockchain technology is "an essential but subordinate component" of the service in question, "it lowers the level of appropriate judicial scrutiny."

Conclusion

The Court's opinion in United States v. Griffith is an important reminder that US sanctions laws and regulations can restrict what a US person can say to a foreign audience, depending on the nature of their remarks and the particular audience in question. US persons need to carefully consider whether, by speaking, they are exporting a service to a prohibited country or party. That evaluation will turn on the location, the audience, the contours of the speech, and the context in which the statements are made. The more technically oriented the speech and the more useful it may prove in practical application, the greater the likelihood that it may be viewed as a kind of service that could run afoul of US sanctions laws. Speaking on a topic like applications of blockchain technology and cryptocurrency in a country subject to, and interested in, evading US sanctions is sure to generate interest from US regulators and prosecutors.