Below are articles referencing more detailed precedence set, from January 2019 to present day. The subject matter is extensive. I highly recommend performing a “Ctrl+f” command to lookup any specific topics you are interested in.
Australia / ASIC
Australian Government Publishes Update on Cryptocurrency and ICO Rules- Going forward, companies issuing crypto assets deemed to be financial products will be required by law to procure an Australian Financial Services (AFS) license. On the flipside, for crypto assets which aren’t financial products, promoters must ensure that they don’t engage in any form of deceptive advertising.
Australia / AUSTRAC
Australia Watchdog Suspends Two Cryptocurrency Exchanges For Drug Offences- The Australian Transaction Reports and Analysis Centre (AUSTRAC) and Australian Federal Police issued a joint statement announcing a man involved in a multimillion-dollar darknet drug dealing syndicate has been arrested. Following the arrest, AUSTRAC suspended the registrations of two cryptocurrency exchanges associated with the man, reportedly AUSCOIN ATM and MK Buy & Sell, which trades as SK BTC. The businesses lost their licenses to operate for allegedly facilitating the crimes that go back to at least 2017 when two other members of the syndicate were arrested with 30 kilograms of narcotics.
Bahrain / Central Bank
The Central Bank of Bahrain has released a final version of new rules concerning cryptoassets in the Kingdom, which span from trading and custody guidelines to licencing requirements for exchanges.
A Toronto judge ordered the forfeiture of over 280 BTC from a Canadian cocaine, PCP, and ketamine dealer, making it Canada's largest BTC seizure to date. An Oregon man also pled guilty to distributing fentanyl or its derivatives via darknet markets, which resulted in the death of a Wisconsin man in 2017.
Additionally, the People’s Bank of China published a 2019 priority agenda which included "strengthen supervision of virtual currency monitoring" and reiterated their plans to "promote the research and development of central bank digital currency." While not technically a "central bank" itself, the Asian Development Bank Institute distributed a working paper that categorized the spectrum of proposals central banks are considering with regard to central bank digital currency, and stated, "digital coins, such as bitcoin, can be considered as newly emerged private sector money."
Dutch / FIOD
Law Enforcement Seizes Cryptocurrency Money Laundering Service- Law enforcement shut down the cryptocurrency mixing platform, Bestmixer.io, in the first seizure of its kind. The Dutch Fiscal Information and Investigation Service (FIOD), in close cooperation with Europol and the authorities in Luxembourg, conducted a year-long investigation that led to the seizure of six servers in Luxembourg and the Netherlands. The Bestmixer.io service enabled users to mix cryptocurrency funds to obscure their origin while maintaining user anonymity. The investigation so far into this case has shown that many of the mixed cryptocurrencies funds on Bestmixer.io had a criminal origin or destination. The site launched in May 2018 and has since had over $200m EUR worth of turnover in cryptocurrency. FIOD gathered records from the site, including IP addresses, chats, and transactions, and seeks to share this intelligence with other countries to support criminal investigations.
Police Arrest Dutch Man in Cryptocurrency Fraud- A man leading a counterfeit Bitcoin mining operation was arrested according to an announcement by the Dutch tax authority’s investigative department, FIOD. The fraud claimed approximately €23 million ($25 million) in funds from victims who thought they were funding the purchase of computers and other equipment for the mining operation. The man is accused of fraud, forgery, and money laundering. The business began in 2017, promising investors a return of 0.3 bitcoin per month. Following complaints, FIOD raided the man’s apartment in November 2018. Dutch financial authorities earlier this year suggested a licensing scheme for cryptocurrency firms to prevent financial crime.
Finland / Financial Supervisory Authority (FIN-FSA)
Finland’s financial regulator begins role as crypto sector supervisor- On May 1, Finland’s financial regulator, the FIN-FSA began regulating the cryptocurrency industry. The regulation will apply to virtual currency exchange services, custodian wallet providers, and issuers of virtual currencies. On May 15, the FIN-FSA will conduct a briefing to the cryptocurrency industry in Helsinki on the nature of these regulations and the registration timelines for industry participants. FIN-FSA noted that the regulations are a response to the May 2018 EU directive on anti-money laundering (AML), which focused particularly on the financing of terrorist activities. France is rumored to be the next EU member state to announce a cryptocurrency-regulation based response. While this is an exciting development for cryptocurrency legitimization in the EU, the FIN-FSA took care to remind the public that the risk virtual currencies pose to investors “remains unchanged.”
LocalBitcoins: AML Regulation and New features Update- A blog post by the widely-popular peer-to-peer bitcoin exchange stated that the Financial Supervisory Authority of Finland will now oversee the company, thanks to the passage of the Act on Virtual Currency Service Providers and the amendment of AML laws by the Finnish Parliament. In order to comply with the regulatory shift, LocalBitcoins will implement varying levels of account verification that will “provide a safer and better service conforming to the regulations.” The post goes on to say that the supervision “should improve significantly Bitcoin’s standing as a viable and legit financial network.”
Japan / Financial Service Agency
Japanese Regulator Eyes Cryptocurrencies as It Toughens Money Laundering Laws- The Japanese Financial Services Authority (FSA) is looking to increase its money laundering countermeasures, including a review of cryptocurrency exchanges. The Financial Action Task Force (FATF), the inter-governmental body that sets global standards relating to anti-money laundering and combating the financing of terrorism, will go to Japan this fall to assess domestic money laundering laws. It is expected to look at cryptocurrency exchange operators, banks and credit unions, following regulatory guidance issued next month.
Japanese regulator seeks to bolster offline storage rules for cryptocurrency exchanges- Japan’s financial regulator, the Financial Services Agency (FSA), will require exchanges to improve oversight of “cold wallets,” or methods of cryptocurrency storage that are not connected to the internet. The agency will soon release the new set of rules. This move by the FSA bolsters Japan’s national interest in cryptocurrency and fintech. Japan was one of the first countries to regulate cryptocurrency on a national level. The country recognizes Bitcoin as a form of payment, and the FSA implemented AML and KYC principles in April 2017.
E-Commerce Giant Rakuten Wins License for New Crypto Exchange- Japan’s Financial Service Agency awarded coveted operating licenses, which are required for Japanese cryptocurrency businesses, to two applicants, bringing the total number of outstanding licenses to 19. One of the licensees, Rakuten Wallet, is a subsidiary of the multi-billion dollar Japanese e-commerce company Rakuten, who released a statement following the announcement. The other business was a cryptocurrency exchange called Decurrent, which says it will begin offering spot trading services next month
Singapore / Monetary Authority
Monetary Authority of Singapore halted an ongoing ICO which had intended on using an exemption from traditional registration. It was warned not to proceed after the issuer "failed to comply with the advertising restriction when its legal advisors put out a LinkedIn post accessible to the public calling attention to the offer."
UK / FCA:
British FCA Sees 3x Increase in Crypto, Forex Scams- The British financial watchdog, the FCA, has found a significant increase in cryptocurrency and foreign exchange fraud claims, from 530 to 1,834 2019/2018 YTD (April). More than eighty percent of the scams were cryptocurrency scams. While the volume of reported scams increased, the average individual losses were significantly less, owing to an increase in small online “phishing’ scams. Total losses also fell, from about £38m to £27m. The FCA and the Treasury are looking to crack down on cryptocurrency crime and exploitation, and have collaborated on the government-led Cryptoasset Taskforce. The FCA is also considering a ban on cryptocurrency derivatives, while the Treasury is considering expanding the FCA’s mandate to include a greater part of the cryptocurrency industry.
The U.K.’s Financial Conduct Authority (FCA) is seeking public comment on their newest consultation paper titled "Guidance on Cryptoassets," which expresses the FCA’s opinion on the applicable regulations for different categories of cryptoassets such as security tokens and can be read about here.
USA / Attorney’s Office
May 2019- New York
New York A.G. James announces court order against Bitfinex and Tether- Last Friday, New York Attorney General Letitia James filed a preliminary injunction against iFinex Inc., the operator of the Bitfinex virtual asset trading platform, and Tether Limited, the issuer of the Tether virtual currency, the eighth most popular cryptocurrency by market capitalization. “Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of commingled client and corporate funds,” said Attorney General James. The alleged loss involves a transfer to Crypto Capital, the Panamanian payments processor employed by Bitfinex. Tether and Bitfinex responded with the following statement: “[The] court filings were written in bad faith and are riddled with false assertions, including as to a purported $850 million ‘loss’ at Crypto Capital. On the contrary, we have been informed that these Crypto Capital amounts are not lost but have been, in fact, seized and safeguarded. We are and have been actively working to exercise our rights and remedies and get those funds released.”
May 2019- Oregon
U.S. Attorney indicts two Nigerian nationals in Bitcoin fraud- The U.S. Attorney Billy J. Williams announced that two Nigerian nationals were indicted in Portland, OR on 13 counts; one count each of conspiracy to commit wire fraud and money laundering, and 11 counts of wire fraud. The alleged fraudsters operated websites such as www.wealthcurrency.com, which promised Bitcoin returns of 20-50 percent with “zero risk” and “instant withdrawals,” starting in 2017. Through June 2018, the two are alleged to have actively conspired to defraud three victims in Oregon and California, and they created an online persona using an image of a fourth victim. The pair stole 10 Bitcoins worth $59,000, eventually exchanging them for Nigerian currency. The SEC this week issued an investor alert, warning of sites such as those used in this scam.
A case brought by the U.S. Attorney’s Office of the Eastern District of California in conjunction with the Joint Criminal Opioid Darknet Enforcement (J-CODE), a federal grand jury indicted a California nurse who allegedly sold over 20,000 prescription opioid pills on darknet markets. Federal agents found about $1.8 million in Bitcoin and about $234,000 in cash at her residence.
Commodity Futures Trading Commission seeks to become “21st Century Regulator,” discusses cryptocurrency clearinghouses- In his testimony on the state of the Commodity Futures Trading Commission (CFTC) before the House Committee on Agriculture Subcommittee on Commodity Exchanges, Energy and Credit, CFTC Chairman J. Christopher Giancarlo emphasized the need to have a “rapid response” to technological innovation and “conduct independent market data analysis” while “embracing market-based solutions.” Giancarlo also identified the LabCFTC, founded in 2017, as an internal “FinTech stakeholder” based in New York City that monitors emerging financial technologies, especially in cryptocurrency. Giancarlo added that he expects to see more applications from cryptocurrency firms wishing to register as clearinghouses (financial institutions which validate transactions and to reduce counterparty risk). LedgerX operates as such, and applications from Bakkt and from ErisX await CFTC approval.
U.S. Charges "My Big Coin" Virtual Currency Firm Founder With Fraud- Randall Crater, the founder of My Big Coin, wasindicted in a Massachusetts court and subsequently arrested in Florida on seven counts of wire fraud and unlawful monetary transactions. The charges stem from the misappropriation of $6MM of investor funds, which were raised by falsely claiming that a proprietary virtual currency was transferable to anyone and had $300MM in gold bullion backing its value. The CFTC brought a civil suit against the company in January 2018 for violating federal commodities laws, which is still ongoing. However, in the course of the CFTC lawsuit the court made one of its firstdeterminations that certain virtual currencies can be commodities for regulatory purposes.
Brookings Has Published a Report By Former CFTC Chairman Timothy Massad On Cryptocurrency Regulation- The former Chairman of the CFTC called for expanding the scope of U.S. crypto oversight in a recent report out of the Brookings Institution titled “It’s Time to Strengthen the Regulation of Crypto-Assets.” Citing the Chainalysis Crypto Crime Report, the Brookings report highlights the industry’s unaddressed risks and recommends enlarging the purview of the SEC or CFTC to fully encompass the sector. In order to facilitate these responsibilities, the report argues for increasing the resources of both agencies and emphasizes the importance of self-regulatory initiatives.
USA / Congress
The previously celebrated Token Taxonomy Act has been reintroduced in the House after dying in committee at the conclusion of the 115th Congress. The Token Taxonomy Act would implement multiple favorable regulatory shifts for the cryptocurrency industry. Notable changes include excluding “digital tokens” from the statutory definition of a security, granting exchanges between virtual currencies the coveted tax exempt “like-kind exchange” status that real property enjoys, and exempting from gross income up to $600 per transaction of capital gains resulting from the sale of virtual currencies.
The FIND Trafficking Act and Financial Technology Protection Act, which were introduced earlier this month, have both passed the House and now move on to the Senate. The FIND Trafficking Act would require the Comptroller General to conduct a study into the use of virtual currency for illicit sex and drug trafficking, but the Financial Technology Protection Act would go much further by creating an interagency task force and a bounty program aimed at combating virtual currency use in terror financing.
USA / DA
Manhattan D.A. Vance busts $2.8m internet drug ring- Two individuals have pled guilty to running a steroid and controlled substance business which accepted cryptocurrency and Western Union payments. From 2013 to 2018, the pair shipped over 10,000 packages of steroids and other drugs including Valium, Xanax, and Viagra. The drugs were sold via various dark web outlets and the site “NextDayGear,” which the defendants operated. The defendants purchased wholesale drugs from China, mixed, pressed, and packaged the drugs with counterfeit brand names, and shipped them to customers in all fifty states. This is the first conviction involving cryptocurrency by New York State prosecutors. Said D.A. Vance, “Online drug sellers who do business in New York should take note: whether you’re operating in plain sight or in hidden corners of the dark web, my Office has the skills and resources to follow the money, shut down your business, and hold you accountable.” This operation is unrelated to the sting we mentioned in last week’s update.
Manhattan D.A. Vance indicts major dark web drug sellers: “We have a cybercrime crisis that’s not yet fully appreciated.”- The Manhattan District Attorney has concluded a two-year investigation into a major dark web drug seller. The investigation began in 2017 when the office received a tip that large amounts of cash were being withdrawn from city ATMs, one of which converted cryptocurrency to cash. Three New Jersey men were indicted for multiple counts related to money laundering, sale of controlled substances, identity theft, and conspiracy to commit fraud. The sellers converted at least $2.3M in cryptocurrency, which they loaded onto prepaid cards to make local ATM withdrawals, and fulfilled orders for various controlled substances as well as counterfeiting pills like Xanax at a lab they set up in New Jersey. The DA made several purchases of illegal drugs from ads they had listed on the Dream Market, one of the largest darknet marketplaces that recently announced it is shutting down.
Deep Dot Web Shut down by FBI and Europol- The FBI, with help from Europol and others, shut down Deep Dot Web, a website for facilitating access to dark web sites and marketplaces, and arrested its administrators. Deep Dot Web is said to have made millions of dollars through their referral business, sending traffic via .onion domains over the Tor Network. The .onion site was seized by the FBI, citing U.S. money laundering laws. Suspects were arrested in Israel by the Tel Aviv police, who first confirmed the arrests in a local statement, with further arrests made in France, Germany, the Netherlands, and, according to one source, Brazil. Visitors to the Deep Dot Web site are greeted by a seizure notice from the FBI and its law enforcement partners.March 2019
FINCEN Fines Man for Operating Illegal Virtual Currency Exchange- FinCEN has penalized a man for operating a peer-to-peer virtual currency exchange without a license. California-based cryptocurrency trader Eric Powers received a civil money penalty for failing to register as a money services business (MSB) with FinCEN, adopt AML standards, and file suspicious activity reports (SARs) and currency transaction reports (CTRs). “Obligations under the Bank Secrecy Act (BSA) apply to money transmitters regardless of their size,” said FinCEN Director Kenneth A. Blanco, who noted that this is the first time that these penalties have been issued under the March 2013 guidance provided by the agency, and they will continue to be enforced by FinCEN. Mr. Powers conducted over 200 transactions each involving more than $10,000 in currency, some with darknet entities, but did not file a single CTR. Eric Powers has been fined $35,000 and is permanently barred from the MSB industry.
USA / IRS
IRS to issue first cryptocurrency guidance since 2014 "soon"- The IRS stated it will soon issue cryptocurrency tax guidance, having only done so in a limited way in 2014. Responding to a letter from Rep. Tom Emmert, member of the congressional blockchain office, sent 11 April, Commissioner Charles P. Rettig outlined the ways in which the IRS would address issues related to the handling of cryptocurrency, including 1) cost basis, 2) methods of cost basis assignment and 3) the treatment of forks, adding “I share your belief that taxpayers deserve clarity” and that the updates on these issues would come “soon.” Responded Rep. Emmer, “Taxpayers deserve clarity on several basic questions regarding federal taxation of these emerging exchanges of value. I look forward to seeing their forthcoming proposal, and working together to serve the American taxpayers.”
Tax Day: Bipartisan Members of Congress urge IRS for tax and accounting guidance on crypto assets- In recognition of Monday’s tax deadline, twenty-one Members of Congress sent a letter last week to the IRS urging more “robust guidance” around accounting and tax handling of cryptocurrency.The bipartisan letter focused on three core elements: 1) reasonable standards for calculating the cost basis of crypto assets, 2) methods of determining capital gains, and 3) the tax treatment of forks. The letter asked for a response outlining next steps by May 15th, one month from tax day. The IRS did not respond to a similar letter last year, and they have not updated their cryptocurrency guidance since 2014.
Two more companies received the coveted NYDFS BitLicense, which is required for cryptocurrency exchanges to operate in the state of New York. One is the retail brokerage firm Robinhood, which offers services for buying, selling, and storing seven different virtual currencies. The other is LibertyX, which "is the first DFS virtual currency licensee to allow customers to use debit cards to purchase Bitcoin from traditional ATMs."
USA / OFAC:
US Treasury Sanctions Russian Bank Over Links to Venezuela’s Petro- The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned Evrofinance Mosnarbank, a Russian bank, for supporting a Venezuelan state-owned oil company and financing Venezuela’s “Petro” cryptocurrency project. According to the Treasury’spress release, “early investors in the Petro were invited to buy the cryptocurrency by wiring funds to a Venezuelan government account at Evrofinance.”
USA / SEC
SEC Sues Alleged Cryptocurrency Pyramid Scheme Operator- The SEC filed a civil injunctive action against a California man accused of running a pyramid scheme from January 2017 through March 2018. During that time, Mr. Pacheco, a resident of San Clemente California, raised $26m USD from investors to sell instructional packages that included e-commerce training through his iPro brand. Investors who contributed additional funds could earn cash commissions and additional convertible “points,” which could be converted into a nonexistent “PRO” cryptocurrency by recruiting new investors. The collapse was hastened by the fraudulent use of funds by Pacheco, who purchased a $2.5m house in cash and a Rolls Royce. The SEC alleges that Pacheco operated a pyramid scheme and failed to register with the SEC as a seller of securities in his offer of financial products to investors.
SEC delays awaited decision on VanEck Bitcoin ETF- The SEC has delayed its decision on Bitcoin ETFs, in this case asking for more comments on a plan by Cboe to list an ETF from VanEck Associates and SolidX Partners. To date, no Bitcoin ETFs have been approved. The delay does not “indicate that the Commission has reached any conclusions with respect to any of the issues involved,” the regulator said. The SEC previously postponed making a decision on the fund and rejected a request last year from an exchange seeking to list a Bitcoin ETF. Public comments from SEC Commissioner Hester Peirce last week were seen to indicate positive developments for these kinds of regulated products.
Blockstack Files With SEC to Raise $50 Million in Reg-A+ Crypto Token Sale- Blockstack, the company founded in 2017 to create the infrastructure for a decentralized internet, announced its intent to use the Regulation A+ exemption to raise $50m USD in a token sale. This is the first time a prospective token issuer has opted for this particular exemption from registration, which would allow tokens to be sold to the public. If approved, Blockstack would not be required to only seek funds exclusively from accredited investors, which is the case in other types of exemptions such as private placements. Additionally, Blockstack’s regulatory filing named Harvard University’s Endowment as an early investor.
SEC Chairman Clayton Just Confirmed Commission Staff Analysis That Found Ethereum (And Cryptos Like It) Are Not Securities- The Chairman of the Securities and Exchange Commission has responded to a bipartisan letter sent by U.S. Representative Ted Budd (R-NC) last September that concerned the applicability of federal security laws to ICOs. The Chairman’s response elaborated upon contemporary guidance on the subject, such as the SEC’s fake ICO promotional webpage www.howeycoins.com, the DAO Report, and recent speeches made by Commissioners. Most notably the Chairman’s letter confirmed the remarks made by SEC Director Hinman that ETH no longer meets the Howey test and thus does not constitute a security.
The SEC recently announced that an ICO issuer, Gladius Network, settled charges of running an unregistered securities offering after receiving a cease-and-desist order to halt further violations and return investor funds. This was the first instance of an ICO issuer receiving an enforcement action of this type that did not result in a civil penalty because Gladius self-reported to the SEC, expressed an interest in taking prompt remedial steps, and cooperated with the investigation. This also exemplifies the SEC’s public stance that "there is a path to compliance with the federal securities laws going forward, even where issuers have conducted an illegal unregistered offering of digital asset securities."
Europol and others deliver double-blow to dark web marketplaces- Last week we covered the chaos over at Wall Street Marketplace, the preeminent dark web marketplace which had just shut down. Later in the week, Europol announced they helped the German Federal Crime Police shut down the marketplace, along with the help of other agencies, including various US government agencies. The Silkkitie, or Valhalla Marketplace, was also shut down with its contents seized by Finnish customs in close cooperation with French National Police and Europol. Europol’s Executive Director, Catherine De Bolle, commented: “These two investigations show the importance of law enforcement cooperation at an international level and demonstrate that illegal activity on the dark web is not as anonymous as criminals may think.” Europol has assembled a “dark web team” to monitor illicit activity on the dark web.
Two major darknet marketplaces shut down this month- Last month, the operators of the prolific darknet marketplace, the Dream Market, announced the site would be shuttered at the end of April due to a law enforcement leak, and that same day, the DEA, FBI, Europol and others announced over ten related arrests. This week, another darknet marketplace, Wall Street Market (WSM), launched an exit scam, stealing $14.2M USD of user funds from the criminals who do illicit business on the site. It is likely that the influx of Dream Market users seeking another marketplace brought additional unwanted attention to WSM and thus the operators decided to steal $14.2m USD of the illicit funds on their site and shut down, rather than welcome the exposure to law enforcement. The WSM admins took the funds, which were kept in escrow to guarantee site transactions, and moved them to private wallets. The situation has devolved into chaos with WSM support agents publishing private addresses and demanding additional ransoms.
International / FATF- Financial Action Taskforce, the international regulatory body against money-laundering and the financing of terrorism.
Chainalysis Provides Feedback to FATF in Advance of Industry Guidelines- In our latest blog post, we discuss the draft regulatory guidance on virtual assets issued by the Financial Action Taskforce (FATF), the international regulatory body against money-laundering and the financing of terrorism (AML/CFT). We believe the forthcoming guidelines as they are drafted today are technically infeasible for the industry, and recommend other technical and organizational measures to achieve the AML/CFT objectives of the FATF.