Manhattan DA Enforces Criminal Penalties for Unlicensed Crypto Operators

New York prosecutors are urging lawmakers to make unlicensed crypto operations a criminal offense, noting that civil fines alone have failed to deter a growing underground economy fueled by crypto.

The CRYPTO Act, short for Cryptocurrency Regulation Yields Protections, Trust, and Oversight, was introduced Thursday by Manhattan District Attorney Alvin Bragg and New York State Senator Zellnor Myrie. According to a statement on Thursday, the CRYPTO Act, short for Cryptocurrency Regulation Yields Protections, Trust, and Oversight, would impose criminal penalties on virtual currency companies that operate without state licenses.

The bill would raise violations that currently carry only civil penalties to misdemeanors with escalating penalties ranging from a Class A misdemeanor to a Class C misdemeanor for companies that process $1 million or more in cryptocurrency within a year.

A conviction for a class C felony carries a maximum penalty of five to 15 years in prison, according to the statement.

Bragg said the expansion of crypto has enabled “a shadow financial system” that allows criminals to easily move and hide illicit funds.

“It is long overdue that companies operating without a virtual currency license and flouting due diligence requirements should face criminal penalties,” the prosecutor said in the statement.

The measure addresses a growing gap in enforcement, as crypto increasingly facilitates criminal activity, while unlicensed operators face minimal consequences.

New York and crypto

Unlike federal law, which allows up to five years in prison for unlicensed money transfers, New York currently only imposes civil penalties on violators, while eighteen other states already criminalize unlicensed crypto operations.

Speaking at the New York Law School on Wednesday, Bragg named crypto enforcement as a second-term priority alongside guns and shoplifting, warning lawmakers that criminals are exploiting regulatory blind spots to launder proceeds from guns, drugs and fraud.

“Nothing new is being banned. Crypto is not banned, DeFi is not banned and users are not being attacked. The rules about who needs a license already exist. What changes will be the consequences of ignoring those rules,” said Nicolai Søndergaard, research analyst at Nansen. Declutter.

Søndergaard warned that introducing criminal sanctions while the boundaries of regulation remain unclear could push companies to act conservatively or avoid New York altogether, making the sector more institutional and “more cautious, more bank-like,” even as it cleans out unlicensed operators and reduces regulatory arbitrage.

Last year, former New York Mayor Eric Adams called for the scrapping of New York’s BitLicense from a major Bitcoin conference in May, saying the regime had become a barrier to crypto innovation and investment.

Introduced in 2015, the BitLicense requires crypto companies operating in New York State to meet strict compliance standards focused on consumer protection, with application and compliance fees ranging from approximately $5,000 to well over $100,000.

Adams, who famously turned his first three mayoral salaries into Bitcoin And Ethereum in 2022, recently scrutinized about NYC Token, a Solana-based crypto he promoted, which briefly reached a market cap of $600 million before crashing amid allegations that a linked wallet siphoned off nearly $1 million in liquidity.