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On Friday, the Trump Administration released a new Executive Order targeting “overcriminalization” in Federal regulations. Here’s more from the fact sheet.

– The Order discourages criminal enforcement of regulatory offenses, prioritizing prosecutions only for those who knowingly violate regulations and cause significant harm.
– Strict liability offenses, which don’t require proof of bad intent, are generally disfavored.
– The Order requires each agency, in consultation with the Attorney General, to provide to the Office of Management and Budget (OMB) a list of all enforceable criminal regulatory offenses, the range of potential criminal penalties, and applicable state of mind required for liability. Agencies must post these reports publicly and update them annually.
– Criminal enforcement of offenses not publicly posted is strongly discouraged, and the Attorney General must consider the amount of public notice provided regarding an offense before pursuing investigations or charges.
– The Order instructs agencies to explore adopting a guilty-intent standard for criminal regulatory offenses and cite the authorizing statute.
– Agencies must publish guidance on referring violations for criminal enforcement, factoring in harm, defendant’s gain, and awareness of unlawfulness.
– The Order does not apply to immigration law enforcement or national security functions.

This memo from litigation boutique, Dynamis, says this policy shift might benefit individuals and businesses in heavily regulated industries like crypto and securities.

– Cryptocurrency and Financial Technology: Companies dealing in cryptocurrency often find themselves navigating unclear or rapidly evolving regulations issued by agencies like the Treasury Department (Financial Crimes Enforcement Network), the Securities and Exchange Commission (SEC), and others. For example, there are regulations on money transmission (18 USC 1960), anti-money-laundering (AML) requirements, and securities registration that may apply to crypto transactions – violation of some of these rules can lead to criminal charges if deemed “willful.”

A crypto startup may unknowingly violate a financial regulation (perhaps by failing to implement an AML program), and regulators could refer the case for criminal prosecution. The new Executive Order signals that if a company in the crypto/fintech space unintentionally falls afoul of a vague rule, it should not be reflexively treated as criminal. Only serious, knowing violations (for example, a company deliberately flouting known rules concerning anti-money laundering) would merit criminal prosecution under the order’s policy.

– Securities and Corporate Regulation: The securities industry has long been subject to dual enforcement: regulatory agencies (like the SEC) handle most violations civilly, but the Justice Department can prosecute egregious securities law violations criminally (such as willful fraud, insider trading, etc.). There are numerous SEC regulations governing filings, disclosures, broker-dealer practices, and more. Many of these regulations carry potential criminal penalties if someone “willfully” violates them (often under statutes like the Securities Exchange Act) . . . The line between a civil enforcement action and a criminal case in securities is murky, and often comes down to intent and magnitude of harm.

The Executive Order reinforces that line by instructing that criminal prosecution is “most appropriate” for those who knew what the rules forbade and deliberately chose to violate them, causing substantial harm. Minor or technical violations, such as violations of disclosure rules that often arise in criminal microcap cases, would be less likely to be referred as criminal matters under the new policy. This doesn’t decriminalize securities laws, but it does aim to reserve the “criminal” label for the clearest bad actors, not every compliance violation.

So we might see fewer SEC referrals to the DOJ for potential criminal prosecutions, but that doesn’t mean individuals will be off the hook. As Liz noted back in February, during his previous tenure as a Commissioner, now Chairman Atkins focused on individual accountability over corporate penalties.

– Meredith Ervine