Why Mutual Legal Assistance Treaties Are Failing Crypto

MLATs are obsolete for crypto. These Cold War-era treaties require formal requests between central governments, a process that takes 6-12 months. By the time a subpoena for a Tornado Cash transaction is processed, the funds have moved through a dozen new privacy pools.

Decentralization is a legal shield. The SEC can sue a centralized entity like Coinbase, but it cannot compel a global network of Lido node operators or Uniswap governance token holders. Jurisdiction dissolves when there is no clear 'issuer' or 'operator' to target.

Evidence: Chainalysis reports that over $7 billion in illicit crypto moved through cross-chain bridges in 2023, yet MLAT-driven seizures accounted for less than 5%. The enforcement gap is not a bug; it is a feature of the architecture.

Dual criminality is the blocker. MLATs require the alleged act to be a crime in both the requesting and requested country. Novel crypto activities like protocol governance attacks or MEV extraction lack established legal precedent globally, creating jurisdictional gaps.

Sovereignty trumps cooperation. Nations like China or Russia refuse MLAT requests for acts they don't criminalize, such as operating an unlicensed exchange. This forces unilateral actions like the OFAC sanctions against Tornado Cash, which bypass treaties entirely.

Evidence: The 2022 U.S. v. BitMEX case saw slow MLAT processes with Hong Kong, while the unilateral DOJ action against the Binance executives demonstrated the treaty framework's irrelevance for fast-moving crypto enforcement.

Subpoenas require a legal entity. The SEC's subpoena power targets corporations with a registered agent. Protocols like Uniswap or Lido lack a central legal entity to serve, making subpoenas legally unenforceable against the core protocol.

Mutual Legal Assistance Treaties (MLATs) are obsolete. MLATs rely on formal government-to-government requests routed through central authorities. Decentralized Autonomous Organizations (DAOs) and pseudonymous core devs operate outside these legacy jurisdictional frameworks, creating a procedural dead end.

The enforcement target is wrong. Regulators subpoena the front-end interface (e.g., uniswap.org), not the immutable smart contracts. Users bypass this via direct contract interaction or alternative UIs, rendering the enforcement action ineffective against the underlying activity.

Evidence: The SEC's 2021 case against Ripple hinged on proving the company was a central entity. For a truly decentralized protocol, this legal theory collapses, as seen in the ongoing debates around MakerDAO and Aave's governance structures.

MLATs are obsolete for DeFi. Their reliance on centralized intermediaries and slow, state-to-state diplomacy fails against permissionless protocols like Uniswap or Aave. Law enforcement cannot 'serve papers' to a smart contract.

Enforcement moves on-chain. Regulators like the SEC and OFAC now target the infrastructure layer, sanctioning wallet addresses and compelling compliance from front-end operators and node providers like Infura and Alchemy.

The FATF Travel Rule is the blueprint. Global standards for VASPs (Virtual Asset Service Providers) create a de facto compliance layer. Protocols that integrate with regulated entities, such as Circle's USDC, must adopt these rules.

Evidence: The 2022 OFAC sanction of Tornado Cash demonstrated that code is not law in the eyes of regulators. Major stablecoin issuers and infrastructure providers complied, freezing sanctioned addresses across the ecosystem.