CryptoLaw Newsletter #12 - 27 July 2021

Salvadorans protest against the BitcoinLaw, the EU proposes stricter AML rules and more regulatory actions, lawsuits and hearings in the US.

Digital assets

  • Bermuda – The Bermuda Monetary Authority approved the first ‘Class T’ digital asset business licence under the Bermuda Digital Asset Business Act 2018. The new license holder, 24 Exchange, offers over-the-counter trading services, which it can now expand into digital assets. It plans to start offering physical crypto trading to its institutional clients later this summer. (Cointelegraph
  • EU – The European Commission is proposing rules to extend anti-money laundering obligations to a wider set of crypto-asset transactions. If adopted, the so-called ‘travel rule’ would require crypto-asset service providers to collect information on both the sender and receiver of a crypto transaction. The Commission said it is ‘banning’ anonymous wallets, but it’s more accurate to say the rules prohibit crypto companies from offering anonymous services. (Reuters and Coindesk) See our spotlight below for an overview of the draft rules.
  • US – Stablecoin issuer Tether is facing a probe by the Department of Justice. The DoJ is reportedly looking into whether the issuer of the world’s largest stablecoin committed bank fraud in its earlier days. Federal prosecutors want to find out if Tether concealed from the banks it interact with that its transactions were linked to crypto. US federal investigators previously looked at allegations that tether was printed to pump up the price of bitcoin. According to a Bloomberg report, ‘the current focus on bank fraud suggests prosecutors may have moved on from pursuing a case tied to market manipulation’. (Bloomberg) Tether and Diem (formerly Libra) were also high on the agenda of the President’s Working Group on Financial Markets at its recent meeting. The Working Group ‘was particularly concerned about Tether’s claims that it holds massive amounts of commercial paper’. (Bloomberg)
  • US – More regulatory scrutiny for crypto company BlockFi. A few days after a cease-and-desist order in New Jersey, the company faced more regulatory actions in Alabama, Texas and Vermont over its interest accounts. The Alabama Securities Commission (ASC) issued a show-cause order to the company, accusing it of offering unregistered securities. The Show Cause Order alleges that, despite advertising on its website that BlockFi is a ‘US regulated entity’, BlockFi did not disclose to investors that its BlockFi Interest Accounts are not registered with the ASC or any other securities regulator. In Texas, the Texas State Securities Board published a notice for a hearing in October before an administrative law judge. The hearing is intended to determine whether to issue a cease-and-desist order. According to BlockFi’s website, Vermont also issued an order, although no further details are known. (Cointelegraph, Decrypt and Coindesk)
  • US – The SEC could issue new rules on security-based swaps in the near future , its Chair Gary Gensler said in a speech. Stock tokens and similar virtual products would be covered by the new rules just as much as any other security, he warned. (Cointelegraph
  • US – A class action suit has been brought in California against Dfinity, arguing the launch of Dfinity’s ICP token amounted to unregistered securities being offered in violation of US securities law. The lawsuit alleges that at least 24% of ICP tokens were given to the controlling defendants, including venture capital funds Polychain and Andreessen Horowitz, both well-known crypto investors. ‘Defendants have since earned massive profits by selling the retained ICP to the public, without complying with federal securities laws, in what is essentially an ongoing initial coin offering ,’ according to the plaintiff. (Decrypt)
  • US – The IRS plans to simplify its crypto-asset question on tax returns. The tax authority will now simply ask taxpayers: ‘At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?’ (Coindesk)
  • US – Another week, another hearing. This time, in the Senate’s Banking Committee, with a hearing entitled ‘Cryptocurrencies: What are they good for?’ Witnesses are Angela Walch (St. Mary’s University), Jerry Britto (Coin Center) and Martha Belcher (Filecoin Foundation). The hearing takes place today (27 July). We’ll give you the highlights in our newsletter next week.
  • US – Will Pennsylvania soon have its own crypto-task force? A bill found its way to the state’s General Assembly to propose just that. If adopted, the Digital Currency Task Force will undertake a mapping exercise to understand, for example, the number of cryptocurrencies being traded in the state and their market shares, as well as the number of exchanges and their volumes. Crypto mining and market manipulation would also be on the Task Force’s agenda, among other things. (Cointelegraph and Legiscan)
  • US – Senator Elizabeth Warren wrote another letter urging tougher crypto rules, this time addressed to Treasury head Janet Yellen. Warren had previously written to SEC chairman Gensler, asking for answers to her crypto questions by tomorrow (28 July). Uncertainty remains over which US federal authority is in charge of specific crypto-asset activities. This may be why Warren focused in her letter on the FSOC, which brings together 10 federal regulators, according to CNBC. (CNBC)
  • Australia – Blockchain Australia asked for more regulatory clarity on crypto-assets. In a submission to the Senate, the industry body called for an immediate safe harbour. It urged lawmakers to learn from the approach on crypto-assets taken in other jurisdictions, particularly the safe harbour and other transitional measures adopted in Singapore, the UK and Canada. ‘Our companies cannot afford to wait years for regulatory clarity, and Australian consumers require confidence that they are able to access the products and services they desire at home, via legally regulated and compliant professionals, rather than by seeking out risky services in unregulated locations,’ it wrote. It wants to ensure access to banking services for crypto-companies (a long-standing issue) and proposes a ‘flexible’ implementation of the so-called travel-rule for crypto-companies proposed by FATF. (Cointelegraph and Blockchain Australia)
  • Kazakhstan reportedly is set to allow banks to process crypto-transactions. (Cointelegraph)
  • El Salvador – Protests have erupted against the country’s recently approved BitcoinLaw, despite a 3-month embargo against demonstrations. The BitcoinLaw made bitcoin legal tender in El Salvador and requires merchants to accept the cryptocurrency. Some merchants expressed anger at being forced to accept a highly volatile asset. Others expressed concerns over the way in which the bill was rushed through the legislative process. A study commissioned by Francisco Gavidia University showed 67% of merchants surveyed were not willing to accept bitcoin as payment. (FullCrypto)
  • IMF – The IMF made is view on El Salvador’s BitcoinLaw clear, once more. Using bitcoin as legal tender is a step too far, according to two IMF officials. ‘Attempting to make cryptoassets a national currency is an inadvisable shortcut,’ they wrote.
  • Brazil – Brazilian authorities seized US$ 33 million in a money laundering investigation. According to the authorities, a number of crypto-exchanges were fully aware of the money-laundering activities occurring on their platform and helped the criminal gangs launder the funds. (Decrypt)
  • NFTs – A brief overview of some of the legal issues that non-fungible tokens raise. (Cointelegraph)
  • DeFi by definition cannot be regulated, according to the president of SCB, one of Thailand’s largest banks. ‘Instead, there needs to be a framework for how DeFi can be integrated with the rest of the financial ecosystem,’ Arak Sutivong said. (Cointelegraph)



The latest EU crypto-asset proposals travel rule and anonymous crypto wallets

The European Commission wants to tighten the rules on crypto-asset transfers. It also announced a ‘ban’ on anonymous crypto-wallets to target money laundering and terrorist financing, it announced, but the proposed rules don’t seem to go that far.

The new crypto rules form part of a broader package of reforms on anti-money laundering put forward by the Commission. As part of the package, the Commission is also proposing a new EU-wide anti-money laundering body.

For crypto-assets, the Commission wants two legal changes: (i) an extension of the so-called travel rule to all cryptoasset transfers involving crypto-asset service providers and (ii) a ban on anonymous crypto-services, such as anonymous exchange accounts.

The rules apply only to the extent an intermediary is involved…

Read more

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