Below are articles referencing more detailed precedence set in 2020. The subject matter is extensive. I highly recommend performing a “Ctrl+f” command to lookup any specific topics you are interested in. You can also search in the 2019 content.
Note: In September of 2020, Chainalysis stopped sending out weekly news updates, but they did release a great comprehensive document titled "The Chainalysis 2020 Geography of Cryptocurrency Report". Please see PDF copy, below.
Wall Street Revealed To Be Edging Out Bitcoin Traders With $1 Million+ Transactions- As of June, professional traders accounted for approximately 90% of North American cryptocurrency transfer volume, according to data in our forthcoming 2020 Geography of Cryptocurrency Report, which we previewed on our blog. But over the last two years, a growing class of institutional investors dominated these transactions: cryptocurrency transactions above $1M USD rose from 46% of total value transferred in late 2019 to a high of 57% of total value in May 2020, with the share of professional transfers growing from 87% to 92% in the same period. "Institutional money is only just beginning to enter the cryptocurrency ecosystem, and so the market is still relatively immature and fragmented," said Kim Grauer, Chainalysis' Head of Research, “we expect that as regulators and financial institutions better understand the benefits of cryptocurrency’s transparency, they will start to trust the space more."
Breaking Down the OCC’s Cryptocurrency Custody Announcement- Last week, the United States’ Office of the Comptroller of the Currency (OCC) announced that national banks can provide cryptocurrency custody services to customers, meaning that banks are authorized to hold the private keys to a customer’s cryptocurrency wallet just as a hosted wallet service or exchange would. They also reaffirmed a prior decision that national banks can provide banking services to cryptocurrency businesses. On our blog, Head of Policy Jesse Spiro discusses why the OCC is taking this important step now and what banks should be doing to assess risks and opportunities with cryptocurrency.
Analyzing one of Venezuela’s Regime-Approved Cryptocurrency Exchanges- In our new intel brief, we discuss Criptolago, one of seven cryptocurrency exchanges authorized by the Maduro Regime to operate in Venezuela and facilitate the buying and selling of the PETRO, the national cryptocurrency. Given the Maduro regime has stated that circumventing sanctions is a goal of its cryptocurrency project, government officials, financial regulators, and compliance professionals should understand how Venezuelan exchanges like Criptolago interact with the international cryptocurrency ecosystem. In this report, we break down Criptolago’s transaction history to date and examine its leadership and operations.
Federally Chartered Banks and Thrifts May Provide Custody Services For Crypto Assets- The Office of the Comptroller of the Currency (OCC) announced today that national banks and federal savings associations may provide cryptocurrency custody services for customers. "From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today," said Acting Comptroller of the Currency Brian P. Brooks. "This opinion clarifies that banks can continue satisfying their customers' needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency." Notably, the OCC says that this is not a change in policy, but instead a clarification of existing policy.
Former Sanctions Chief Joins Chainalysis Advisory Board As Part Of Expanded $49 Million Investment- Sigal Mandelker, former Treasury Undersecretary for terrorism and financial intelligence who recently joined venture firm Ribbit Capital, has taken a role in Chainalysis’ board of advisors, following Ribbit’s involvement in the Chainalysis Series B funding round. Ribbit, as well as Ashton Kutcher’s Sound Ventures, participated in a $13 million add-on funding to the previously announced Series B, as Chainalysis seeks to expand its government relationships. Mandelker will share her insights and to help develop new partnerships in the public and private sectors. “The fact that they're building relationships, terrific relationships, both with financial institutions and with the government sector, including with law enforcement, is going to be really important for the future of this industry,” says Mandelker.
PayPal, Venmo to Roll Out Crypto Buying and Selling: Sources- PayPal is reported to be launching direct sales of cryptocurrency to its 325 million users, according to those close to the matter. “My understanding is that they are going to allow buys and sells of crypto directly from PayPal and Venmo,” an industry source told CoinDesk. “They are going to have some sort of a built-in wallet functionality so you can store it there.” The rollout is expected to apply to the Venmo app as well, owned by PayPal. Currently, Paypal can be used to withdraw money from cryptocurrency exchanges.
NY-DFS Begins to Apply Licensing Authority in Partnership with SUNY Schools- New York State Department of Financial Services (DFS) Superintendent Linda A. Lacewell announced that the State University of New York (SUNY) and the DFS intend to launch a new virtual currency program, SUNY BLOCK. The program, once it is licensed by the DFS, will support virtual currency entities within their communities. “This MOU [Memorandum of Understanding] with SUNY is a strategic step to diversify and deepen the next wave of innovators in the virtual currency space in New York,” said Superintendent Lacewell. “The DFS actions announced today in consultation with numerous industry participants and the public will boost responsible innovation and help get New York’s economy back on its feet. DFS is proud to foster accessibility and will continue to blaze a trail in the virtual currency marketplace.” This announcement is the first example of how DFS can use its licensing authority: under the framework, entities may apply for a conditional license when partnering with a DFS-authorized entity. The DFS is seeking public comment by August 10th.
60% of Bitcoin is Held Long Term as Digital Gold- A new report from Chainalysis suggests most Bitcoin is held for long-term investment. Approximately 60% of the total Bitcoin supply is held by parties that have never sold more than 25% of the Bitcoin they’ve ever received and have often held on to that Bitcoin for many years. Only 19% of the outstanding supply – or 3.5 million bitcoins – are used for trading, mainly between exchanges. The report also showed that a small number of professional traders move the most value, accounting for 85% of all the USD value of Bitcoin value sent to exchanges.
Fidelity Says a Third of Big Institutions Own Crypto Assets- According to a new survey from Fidelity Investments, about a third of large institutional investors own digital assets such as bitcoin. In the U.S. and Europe, 36% of the 774 survey respondents said they own crypto assets. In the U.S. 27% of institutional investors (including pension funds, family offices, advisors, and traditional hedge funds and custodians) said they own digital assets, as compared with 45% of the 441 institutional respondents in Europe.
New York DFS and France ACPR Sign MOU to Boost International Fintech Cooperation- The New York Department of Financial Services (DFS) announced last week that it signed a Memorandum of Understanding (MOU) with France’s Autorité de Contrôle Prudentiel et de Résolution (ACPR). The MOU looks to promote mutual cross-border collaboration in fintech between French and New York markets by including sharing regulatory best practices and encouraging responsible innovation.
Spending On Blockchain Solutions Could Surpass $16 Billion By 2023- According to research firm CB Insights, industry spending on blockchain solutions could surpass $16 billion by 2023. The report, “Banking Is Only The Beginning: 58 Big Industries Blockchain Could Transform” covers expected industries like banking, asset management, online messaging, and several contract and supply chain dependent industries, while also exploring growth stories for libraries, publishing, voting, and fishing, among others.
People’s Bank of China Pledges to “Accelerate” Blockchain Development, Boost Local Industry- Chinese publication Sina News on May 13 reported that the Financial Technology committee of the People’s Bank of China (PBOC) held a meeting recently to explore the next steps of blockchain technology development in China. Fan Yifei, the bank’s deputy governor, headed the meeting and said that the Chinese economy needs to “accelerate its digitization” and set 2021 as a strict deadline to adopt and implement an infrastructure for blockchain. “It’s necessary to strengthen the application of regulatory science and technology, actively use big data, artificial intelligence, cloud computing, blockchain, and other technologies to strengthen the construction of digital supervision capabilities,” said the PBOC official.
Bakkt Announces New Insurance Coverage, Claims More Than 70 Custody Clients- The Bitcoin warehouse Bakkt announced that it has onboarded more than 70 clients for its custody services, providing more than $600 million in insurance coverage. Company president Adam White said in a blog post that Bakkt had partnered with insurance broker Marsh to provide this cover, which Bakkt customers can purchase directly.
Vietnam Government to Launch Crypto Research Group to Evaluate Policy: Vietnam’s Ministry of Finance will establish a research group to study policy proposals regarding cryptocurrencies and virtual assets. The group will include members of the General Department of Taxation, the State Securities Commissions, and other financial and regulatory authorities in Vietnam.
Facebook-Backed Libra Project Gets New CEO- Facebook’s digital currency project, the Libra Association, has a new CEO. Stuart Levey spent the last eight years as HSBC’s chief legal officer, following his service as the United States Treasury Undersecratary for Terrorism and Financial Intelligence during the last Bush administration. Former Treasury Secretary Hank Paulson praised Levey for his commitment to fighting money laundering and terrorist financing. Though the former Treasury Secretary made no comments on Libra directly, he said “I’m confident any digital currency that he has responsibility for will set a very high standard.”
JPMorgan Extends Banking Services to Bitcoin Exchanges- JPMorgan Chase has accepted two popular bitcoin exchanges, Coinbase Inc. and Gemini Trust Co., as banking customers. This marks the first time the bank has accepted clients from the cryptocurrency industry. The accounts were approved last month, and will process wire transfers, deposits and withdrawals, according to people familiar with the matter.
UAE’s DLT Overhaul on Track to Bring Blockchain to Daily Life by 2021- In 2018, the United Arab Emirates launched its Emirate Blockchain Strategy 2021: a plan to migrate at least 50% of government related transactions onto distributed ledger technology (DLT) platforms before the end of 2020. The overhaul is expected to save about $3 billion in transaction and processing costs, save 77 million work hours, and significantly reduce paper use for printing: an expected reduction of 398 million units in the first year, according to Leon Smith, the CEO of Dex, an Abu Dhabi-based crypto firm. “In terms of digital transactions being embedded in your everyday life, a few examples would be Abu Dhabi Ports developing a blockchain framework for its logistical operations, and the Dubai Land Department developing blockchain solutions to record and register property ownership,” said Smith.
Iran Issues License for Massive Crypto Rig Farm- The Iranian Ministry of Industry, Mine and Trade, granted a license to iMiner, a Turkish cryptocurrency mining company, to operate within the country. iMiner’s 6,000 rig setup should make it one of the largest operations for cryptocurrency mining in Iran. iMiner will also continue to offer trading and custody services for the Middle Eastern nation. The company has already invested nearly $7.3 million into a Bitcoin (BTC) mining farm in the Semnan Province of Iran, and has offices in Tehran. In July 2019 Iran authorized cryptocurrency mining as an industrial activity, and the energy-producing nation’s low costs are attractive to miners used to high electric bills.
Portugal Chases Crypto-Friendly Status With New ‘Free Zones’ for Tech- Portugal published its “Digital Transitional Action Plan” on 21 April, which details how the government will provide infrastructure and incentives for innovation, entrepreneurship, and competition, including for international enterprises in the country across the digital ecosystem. According to a summary by Portuguese law firm VdA Legal Partners, the plan focuses on “capacity-building and digital inclusion of people, digital transformation of businesses and digitalization of the State.” Although the plan does not focus on crypto, it makes the country a much more attractive place to launch a cryptocurrency business.
Stablecoins Provide Cover as Global Risks and Uncertainty Quake- Over the last 12 months (ending April 29, 2020), the top three stablecoins increased their market value by the following rates: Tether (USDT): 161%; Circle (USDC): 191%; Paxos (PAX): 146%. Chainalysis weighs in: “We see interesting technical and economic trends that may be related to this surge. Technically, most of the growth in Tether activity can be attributed to Tether on the Ethereum blockchain. In March 2020, over 90% of Tether transactions were settled on the Ethereum blockchain whereas just under 19% were settled there in April 2019.” Adding that 65% of Tether value was transferred in transactions that were over $100,000 each: “This confirms some speculation that a large source of the demand for Tether likely comes from professionals, probably based in China, where there is no fiat available to onramp into the crypto market.”
Eleven members of Congress are calling on the U.S. Treasury Department to consider blockchain technology to help streamline how cash and supplies are distributed under the federal CARES Act to boost the economy during the COVID-19 crisis.
China Approves 224 New Blockchain Projects- China approved 224 new blockchain projects across industries. The full announcement was shared in a tweet from APAC crypto influencer, Alice Crypto. The majority of projects focused on the FinTech sector, though companies such as Baidu, JD, Alibaba, Suning, China Mobile, China Merchants Bank, and others were mentioned on the approved list.
BIS: CBDC for Coronavirus Crisis?- The Bank of International Settlements (BIS) Innovation Hub head, Benoît Cœuré, said last week that the coronavirus global crisis has put the conversation around central bank digital currencies (CDBC) “into sharper focus.” During an Accenture webinar on 17 April, Cœuré remarked, "the crisis has exposed the value of technologies which enable the economy to operate at arm's length and partially overcome social distancing. Such drastic changes in work and consumption patterns, such as the dramatic shift to online shopping, will have a lasting impact on economic relationships,” adding, "COVID-19 will accelerate the digital transition beyond payments.” This follows the 3 April BIS bulletin, which included now-familiar concerns over banknotes as virus transmission vectors.
Digital Dollar is Back but Crypto Dad Takes Issue- US Congresswomen Rashida Tlaib and Pramila Jayapal introduced the “Automatic BOOST to Communities Act”(ABC Act) on 16 April, which among other Coronavirus relief measures, reintroduced the concept of a “digital dollar.” According to the ABC Act, Congress would authorize the Federal Reserve to create a framework for “Digital Dollar Account Wallets” or “FedAccounts” to be used as money by citizens and firms in the United States. “The digital dollar is a much larger undertaking than just a federal government payment infrastructure. It means a tokenized, digital form of US legal tender with all the future advantages and challenges it will engender,” wrote Christopher Giancarlo, ex-CFTC chairman, in an op-ed for Coindesk.
China Set to Launch its National Blockchain Platform Next Week- The Chinese government will launch its national blockchain platform, the Blockchain based Service Network (BSN), on April 25. The initiative, announced last year, is led by the State Information Center, and supported by five companies from the telecom, tech, and financial sectors, with the aim to help companies deploy blockchain technology more effectively. “This will encourage a vast number of small-, medium- and micro-sized enterprises, and individuals such as students, to use the BSN to invent and innovate, thereby accelerating the rapid development and widespread use of blockchain technology,” said the association.In related news, the Agricultural Bank of China yesterday released a beta of the software that will support its central bank digital currency. And, China’s Ministry of Industry has just launched the “National Blockchain and Distributed Accounting Technology Standardization Technical Committee” which includes Huawei, Baidu, Tencent, JD.com, and Alibaba.
South Korea's Central Bank Begins Pilot Program for Testing Digital Currency- The Bank of Korea began its pilot program for testing the new Digital Won, making South Korea one of the first nations to digitize its national currency. The central bank said on Monday that the program, which launched last month, would run until December 2021. The program will progress in stages to analyze the anticipated legal issues and technical issues of introducing a Central Bank Digital Currency (CBDC), and to prepare the specific amendment plan for the Bank of Korea Act. While the central bank said: “it is not necessary to issue CBDC in the near future” it added that it is making these preparations in order to respond “promptly” to future needs.
World Health Organization Launches Blockchain Platform to Fight COVID-19- This week, the World Health Organization (WHO) launched the MiPasa blockchain platform in partnership with the industry to share data related to the coronavirus pandemic. The platform is built on top of the Hyperledger Fabric, and includes the support of IBM, Oracle, and others, as well as data contributions from public and private health institutions globally. “MiPasa is designed to make it possible to synthesize data sources, address their inconsistencies, help identify errors or misreporting and seamlessly integrate credible new feeds. Our hope is that this tool can help technologists, data scientists and public health officials by giving them the data they need at scale to respond and devise solutions that can help subdue the outbreak or support recovery.”
Blockchain Sandboxes in Russia? Maybe- Despite last week’s news that the Bank of Russia is seeking to ban cryptocurrencies, the Russian Ministry announced this week that it wishes for private industry to test new technologies, including cryptocurrency and blockchain, in regulatory sandboxes. The draft law was introduced to the lower house of the Russian assembly on March 17. The experimental law would provide the Russian Central Bank with oversight of technology sandboxes relating to the industries of healthcare, financial markets, trade, transport, distance learning, construction, manufacturing, and government services.
Australian Securities Exchange Further Delays Blockchain Settlement System- The Australian Securities Exchange has pushed back the April 2021 launch date for its anticipated blockchain-based settlement system. The system was expected to go live at the end of this year, but has been delayed again due to uncertainty from the coronavirus pandemic, according to an announcement on Wednesday. “In this environment of heightened volatility and activity levels, the industry needs to focus on day-to-day operations. We will therefore wait until June to consult on the new timetable when we expect everyone will have more time to consider the replan and better assess the implications of COVID-19. We will then announce the new schedule,” said ASX CEO Peter Hiom, adding, “the investments we are making in the new system and in distributed ledger technology are for the long-term benefit of the financial services industry and the Australian economy.”
Bitcoin PAC to Take Decentralized Approach- HODLpac registered with the Federal Election Commission (FEC) as a hybrid political action committee (PAC) and raised more than $20,000 from Gemini’s Cameron and Tyler Winklevoss and Coinbase CEO Brian Armstrong. However, unlike traditional PACs, its governance structure is decentralized, allowing donors to vote on which candidates receive funding. The PAC is led by Tyler Whirty, a venture capitalist. "We want to help those candidates who are supporting the decentralized economy and operate in a way that is inspired by that community," Whirty said.
Status of “Digital Dollar” Unclear with Congress Poised to Vote on Stimulus Bill- A Democrat-penned version of the stimulus bill on March 22 featured a provision for "a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal [R]eserve bank; or an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System)." It’s unclear if the provision survived to the latest version of the bill, which Congress appears ready to pass.
Russia’s Central Bank Seeks to Ban Crypto Issuance and Circulation- Alexey Guznov, a legal official with Russia’s central bank, announced on Monday that the country would pass a bill banning the issuance and circulation of cryptocurrencies in Russia, where virtual assets remain largely unregulated. The announcement comes at a time of uncertainty for Russian cryptocurrency law, and Guznov’s announcement didn’t provide much more detail. However, he did add that Russian authorities would likely not get involved in non-domestic bitcoin transactions: “If a person who owns, for example, Bitcoins, completes a transaction in a jurisdiction that does not prohibit this, we are unlikely to be able to regulate that.”
WHO Encourages Use Of Contactless Payments Due To COVID-19- The World Health Organization has encouraged use of contactless payments due to COVID-19, or the coronavirus. “People should use contactless [payment] technology where possible,” a WHO representative told the Telegraph. South Korea’s central bank has quarantined physical notes for two weeks, and similar measures have been in place in China. The Bank of England recently acknowledged that banknotes in circulation can hold “bacteria and viruses” and that people should wash their hands after handling money.
Lloyd's Launches Crypto Insurance Services- Insurance behemoth Lloyd’s of London launched a new insurance policy to protect cryptocurrency holders against theft from hacks. With Cardiff-based startup Coincover, Lloyd’s started the Atrium syndicate to provide policies of up to £100,000 to protect against cryptocurrency theft. The policy has a “dynamic limit,” which Lloyds designed to take into account the changing prices of crypto assets, thereby indemnifying the underlying value of the assets, regardless of fluctuations over the policy period. Lloyds says this policy will help mitigate “these new risks and protect against theft – from physical as well as online vaults – thereby providing customers with the peace of mind that their assets are safe.” This is the first policy of its kind.
Bank of International Settlements Reckons With P2P Payments, Tokenized Securities, Central Bank Digital Currencies- The newest Quarterly Report from the Bank of International Settlements (BIS), released Sunday, deals with new trends in international payments in a special “shaping the future of payments” section. This follows the G20 announcement that “improving cross-border payments” would be a priority for 2020, as it is generally accepted that policymakers have not kept up with innovations in the payments sector. In the report, BIS General Manager Agustín Carstens emphasizes that Central Banks sit atop the payments system and will need to take more responsibility for its safety. A subsection of the report analyses how tokenization could transform the clearing and settlement of securities, and while the BIS determined that costs and complexity would be significantly reduced, there is no curb on the risk of one party failing to settle a transaction. The paper also contemplates Central Bank Digital Currencies (CBDCs).
Speculation Undermines Crypto Prices and Utility, Says Bank of England Senior Economist- In a staff working paper titled Blockchain Structure and Cryptocurrency Prices, a senior economist at the Bank of England presents a model for cryptocurrency price formation that considers both the financial market for coins and a fee-based market for blockchain space. The theory suggests that the limited settlement space in blockchains can lead to speculative activity crowding out monetary usage, therefore “higher speculative demand can reduce prices, contrary to standard economic models.” However, the paper concedes that if speculative transactions moved off-chain, with products such as cash-settled derivatives and second-layer scaling solutions like the Lightning Network, then “price volatility may fall and payments usage increase” for cryptocurrencies.
Australian Government Eyes Business Benefits in New National Blockchain Roadmap- The Australian Ministry for Industry, Science, Energy, and Resources released a National Blockchain Roadmap to provide a path for blockchain technology adoption in the country. The Australian government is investing hundreds of thousands of dollars in developing and implementing the technology in sectors such as supply chain management, credentialing, and financial services. While citing outside sources, the roadmap projects the business value of blockchain technology could even surpass $3 trillion by 2030.
Reuters: JPMorgan in Talks to Merge Blockchain Unit Quorum With Startup ConsenSys - Sources- Reuters reports that JPMorgan is contemplating a merger between their 25 person Quorum blockchain team and the Ethereum software developing startup Consensys. Quorum is a fork of the Ethereum blockchain that has customizable features for various enterprise solutions and is the foundation of the JPMorgan Interbank Information Network that is used by over 365 banks. Relatedly, Citigroup and Goldman Sachs completed an equity swap on a different enterprise blockchain platform developed by a startup called Axoni. In order to streamline the transaction, Citi built a dapp on Axoni’s Axcore blockchain and ran a blockchain node on location in one of their offices.
Bank of Japan Must Be Ready to Issue Digital Currencies: Deputy Governor Amamiya- Reuters reports that the Deputy Governor of the Bank of Japan (BOJ) said that the BOJ did not have immediate plans to introduce a central bank digital currency (CBDC) into the economy, however, he did emphasize the potential popularity of such a product in the Japanese market. The central banker said, “depending on how things unfold in the world of settlement systems, the public demand for CBDCs could soar in Japan … we must be prepared to respond if that happens.” Additionally, the Japanese messaging company LINE has announced a plan to offer their LINK tokens to the Japanese market as soon as April 2020 and institutional investors in the country will also have access to a new cryptoasset index consisting of BTC, BCH, ETH, LTC, and XRP.
Former CFTC Chair Launches the Digital Dollar Project- The former Chairman of the Commodity Futures Trading Commission, J. Christopher Giancarlo, and others such as Daniel Gorfine have partnered with Accenture to create the Digital Dollar Project. The Digital Dollar Project’s stated goal is to advance the exploration of a United States central bank digital currency (CBDC) and in the former Chairman’s words, “[a] digital dollar would help future-proof the greenback.” Internationally, CBDCs are piquing interest across multiple central banks that just created a working group with the Bank for International Settlements to share experiences and assess potential use cases in various jurisdictions.
CME's Bitcoin Options See First-Day Volume of $2.3M- The Chicago Mercantile Exchange launched Bitcoin options for trading. On the first day, 55 call option contracts were traded at 5 BTC each, which is a $2.3 million notional value. JPMorgan claimed in a research note that the bank sees ‘high anticipation’ for CME Bitcoin options from traders. Bakkt revealed Bitcoin options trading last month, and the Chairman of the Commodity Futures Trading Commission Heath Tarbert told reporters that regulated outlets for crypto derivatives trading will bring legitimacy to cryptocurrency markets.
The International Monetary Fund (IMF) released a report comprised of technical advice to improve the quality of monetary and financial statistics compiled and disseminated by the central bank of the Philippines. The report states, “[t]he Philippines may become an important market for crypto-assets, as the [central bank] recently authorized operations for three more virtual currency exchanges (VCE), bringing the total number of approved VCE to ten,” and then suggests the country should increase their monitoring efforts of these entities.
In South Korea, the Presidential Committee on the Fourth Industrial Revolution (PCFIR) proposed that Bitcoin trade on the country’s sole national securities exchange and crypto-derivative products be available to consumers because “it is no longer possible to stop crypto-asset trade.”
Singapore Bolsters New Cryptocurrency Regulations with Guidance for Businesses- In his latest blog, Global Head of Policy Jesse Spiro discusses the recently released informational paper from the Monetary Authority of Singapore (MAS). In it, MAS lays out an Enterprise-wide Risk Assessment (EWRA), a framework for how cryptocurrency businesses and other payment services governed by Singapore’s Payment Services Act (PSA) can measure the efficacy of their compliance programs. Resources like the EWRA are a logical next step for financial regulators in countries like Singapore that have already passed strong, FATF-aligned cryptocurrency regulations.
New York Regulator Publishes Cryptocurrency Greenlist- The New York State Department of Financial Services (DFS) published a greenlist of pre-approved cryptocurrencies for custody service and listing. The currencies greenlighted for custody service are: binance USD (BUSD), bitcoin (BTC), bitcoin cash (BCH), ethereum classic (ETC), ethereum (ETH), gemini dollar (GUSD), litecoin (LTC), pax gold (PAXG), paxos standard (PAX), and ripple (XRP); with ETC and XRP excluded from approval for listing. This follows the proposal for the coin adoption process which the DFS had published last December. Any licensed entity may use these coins for their approved purpose.
Singapore Regulator Proposes New Stricter Rules for the Crypto Sector- Singapore’s financial regulator and central bank, the Monetary Authority of Singapore (MAS) has proposed new rules for cryptocurrency businesses following the Financial Action Task Force (FATF) guidelines. MAS published a Consultation Paper on a New Omnibus Act for the Financial Sector and is seeking public feedback on the extension of its regulatory powers. MAS already regulated crypto businesses since the Payment Services Act this January. "Given the internet-based nature of such operations, there may be entities created in Singapore that do not perform such services in Singapore, but offer such services outside of Singapore and that are not captured under current legislation.” MAS intends to regulate these entities.
Relatedly, cryptocurrency service providers operating in Singapore, including exchanges, are required to submit their License Application to MAS by next Tuesday 28th July, 2020. Failure to apply and obtain a license could lead to enforcement actions, fines, or suspension of business. For a list of the 400+ payment service providers for notified MAS of their intent to apply for a license by next Tuesday’s deadline (extended from February of this year), see the MAS website.
FATF Completes 12 Month Virtual Asset Review- Last week, the Financial Action Task Force (FATF) published its 12-month review of the status of its cryptocurrency recommendations made last June. FATF’s findings were largely positive, in that both the public and private sectors self-reported that they have made substantial progress towards implementing its recommendations. Nonetheless, FATF also says it will extend its review period another year until June 2021, at which point they expect full implementation across all jurisdictions for both the public and private sectors. FATF indicated that more time is needed for jurisdictions to align and foster the international cooperation necessary for these regulations to be effective globally. In our blog (available in English and Japanese), we break down FATF’s findings and the inconsistencies between different jurisdictions. In addition to the review, FATF announced its intent to develop an international framework to share information about VASPs (Virtual Asset Service Providers) at a meeting planned for October.
Iran Gives Crypto Miners One Month to Register With the State- Iranian cryptocurrency miners have one month to register with the government, according to a new directive from Iranian Vice President Esaq Jahangiri, announced Monday. The Ministry of Industry, Mines, and Trade will require miners to disclose their identities, the size of their farms, and the type of equipment they use. Officials said they wish to “eliminate the confusion of cryptocurrency activists” with the new directive, although the Iranian government has contributed to the lack of clarity. Though cryptocurrency crime has received serious punishment in Iran, no punishment schedule was released for failure to register.
Outcomes FATF Virtual Plenary, 24 June 2020- Last week in Paris and virtually, Financial Action Task Force (FATF) President Xiangmin Liu chaired the third and final Plenary meeting under Chinese Presidency. Several topics were considered following FATF’s April decision to extend its assessment and follow-up process deadlines due to the unfolding global health crisis. The issues discussed included: anti-money laundering actions and terrorist financing risks related to virtual assets; the FATF report on stablecoins; an update on global jurisdiction and which countries are under increased monitoring; and other initiatives such as a review of the FATF Global Network assessments, issues related to money laundering in the illegal wildlife trade and in weapons of mass destruction, and a discussion of priorities under the forthcoming German Presidency of the FATF.
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Russia’s Economy Ministry Calls for ‘Controllable Market’ Rather Than Crypto Ban- In a letter to parliament, drafted by the Ministry of Economic Development, policymakers criticized the recent draft bills that seek to ban businesses from facilitating cryptocurrency transactions in Russia. The letter, obtained by the newspaper Kommersant, highlights that the proposed measures do nothing to mitigate consumers from buying cryptocurrency elsewhere, in transactions that would be driven outside the scope of regulation and taxation, and thus be of no benefit to the Russian economy. The ministry argued that seeking a “controllable cryptocurrency market” in Russia is a superior approach.
US Supreme Court’s Computer Fraud Ruling Has Big Implications for Crypto- On the docket for the U.S. Supreme Court this summer is United States v. Van Buren, an interpretation of a provision of the 1986 Computer Fraud and Abuse Act, which makes it a crime to “access [ ] a computer without authorization or exceed [ ] authorized access,” and “thereby obtain [ ] information from any protected computer.” To “exceed [ ] authorized access” is defined as “to access a computer with authorization and to use such access to obtain or alter information in the computer that the accessor is not entitled so to obtain or alter.” The case began with a Georgia police officer, Nathan Van Buren, who was authorized to access a police database, but sold data gained from that access to a private citizen. The Supreme Court’s interpretation will have major implications for the cryptocurrency industry.”
S. Korea’s Central Bank Forms Legal Panel to Advise on Possible Digital Currency Launch- An article in The Korea Times published Monday claimed that the Bank of Korea (BOK), named a six-person panel of legal experts in finance and technology who would provide guidance to the bank as it develops and tests its central bank digital currency (CBDC). “We established the advisory group to discuss legal issues surrounding a CBDC and figure out which laws need to be revised or enacted for smooth progress in the BOK’s possible issuance of digital currency,” a BOK official told Korea Times. Bank of Korea Governor Lee Ju-yeol has made several recent comments on CBDC’s: “As an institution responsible for ensuring the safety and efficiency of the payment and settlement system, the central bank needs to proactively respond,” he said in a recent speech celebrating the 70th anniversary of the bank. “The currently ongoing research and development on central bank digital currency must be carried out as planned,” he added.
India Wants to Ban Cryptocurrencies Again- Two months ago, the Reserve Bank of India attempted to ban banks from cryptocurrency trading. That was cancelled by the country’s Supreme Court, which called the ban “unconstitutional.” Now, India’s Ministry of Finance has reportedly passed a draft cabinet note that seeks to establish a legal framework for banning cryptocurrencies in India. The note has not been made public, nor shared with other Indian government entities, as of this time.
FATF Meeting Scheduled to Discuss VASPs Compliance With Travel Rule- The Financial Action Task Force (FATF) has scheduled a plenary meeting to discuss the progress of Virtual Asset Service Providers (VASPs) with regard to worldwide compliance with, and enforcement of, the organization’s “travel rule” -- which was extended in 2019 to apply its anti-money laundering (AML) and anti-terrorist financing (ATF) regulations to digital currencies and environments. The meeting is scheduled for June 24.
OCC Seeks Public Comment For Possible U.S. Crypto Regulations- The U.S. national bank regulator, the Office of the Comptroller of the Currency (OCC), issued an “Advance Notice of Public Rulemaking” (ANPR) entitled “National Bank and Federal Savings Association Digital Activities,” which, according to the press release, seeks public input about “activities related to cryptocurrencies or cryptoassets that financial services companies or bank customers are engaged in and what the barriers or obstacles to further adoption of crypto-related activities are in the banking industry.”
Antigua's Crypto Regulation Bill Passes Lower Parliament- Antigua and Barbuda’s House of Representatives passed a cryptocurrency regulation bill last week. The “Digital Assets Bill 2020” applies a regulatory scope to cryptocurrency companies that establish operations on the Caribbean island, and provides protection for exchanges and their customers. Failure to comply may subject companies to fines of up to $250,000, as well as to criminal charges. The country’s Financial Services Regulatory Commission (FSRC) would be responsible for enforcement. Calvin Ayre, Economic Envoy for Technology for Antigua and Barbuda, said: “Antigua is now at the front of the list of countries set to benefit from the application and tokenization explosion.”
Cryptocurrency Firms Now Recognized as Money Service Businesses in Canada- Cryptocurrency exchanges and payment processors are now considered legal Money Service Businesses (MSBs) within Canada. On June 1, amendments to Canada’s Proceeds of Crime and Terrorist Financing Act were passed to address gaps in the framework, which was adopted last year. Canadian firms must report all transactions exceeding 10,000 Canadian dollars and register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
Blanco on FinCEN Priorities: “This technology belongs to all of us.”- Our Links Virtual series continued last week with FinCEN Director Ken Blanco joining Chainalysis Global Head of Policy Jesse Spiro for a discussion on cryptocurrency regulation. As the primary financial intelligence unit (FIU) of the United States, FinCEN seeks to prevent criminals from abusing the financial system, and to ensure businesses comply with its regulations. Cryptocurrency is increasingly important for FinCEN, and Blanco reviewed issues such as COVID-19 scams, jurisdictional arbitrage, and the importance of private sector Suspicious Activity Reports (SARs) for trend analysis and intelligence. Blanco sees the role of the regulator as essential to protecting the people from crime. What keeps him up at night? “My biggest fear is that we could allow a technology that can be so beneficial to all of us to be hijacked,” Blanco said.
Brazil Antitrust Regulator Revives Probe into Banks’ Crypto Ban- Brazil’s Administrative Council for Economic Defense (CADE) voted this week to review its investigation into the closure of crypto exchange accounts by some of the country’s banks. The antitrust and competition government agency started to review practices of six of the country’s biggest banks in 2018, after the banks had suspended accounts belonging to cryptocurrency firms without explanation. During the initial investigation, the results of which are not public, CADE asserted that the banks imposed restrictions and prohibited access to the financial system. The banks denied the charge and referred to concerns of illicit activities as reason for refusing access, saying cryptocurrency accounts were closed as a security measure to prevent money laundering.
Russia Drafts Draconian Rules for Illegal Crypto Operations- New drafts of cryptocurrency regulation bills were sent to the State Duma (Russia’s Parliament) last week and were publishedand confirmed by Russian news outlets. The legislative proposals were reportedly written by staff at the Digital Economy think tank and the Skolkovo business accelerator. They seek a new version of the bill on digital assets, which has been stuck in the Duma for more two years now, as well as crypto-focused additions to the country’s criminal code. The first draft bill would prohibit the issuance of, and operations with, digital currencies in the nation. Even distributing information about such activities would be banned. The second would introduce a new article into the criminal code bringing sanctions for illegal operations with digital assets.
Louisiana State Senate Considering Crypto Business Licensing Bill- A new bill sponsored by state Rep. Mark Wright (R-77) received unanimous approval in the House of Representatives and is being referred to the Senate Committee on Commerce, Consumer Protection and International Affairs. The bill would establish a crypto licensing program in the state for businesses operating in the region without a comparable license from another state. Crypto businesses would need to apply to the state’s Office of Financial Institutions (OFI) and supply executive’s fingerprints and their “experience, character, and general fitness” to investigation, and pay a nonrefundable registration fee of $2,000. Individuals handling less than $35,000 would only have to register with the OFI.
Iran Moves to Restrict Crypto Exchanges Under ‘Currency Smuggling’ Laws- According to the Iranian news outlet ArzDigital, the Iranian parliament published a proposal to include cryptocurrency in its “currency smuggling” and foreign exchange regulations. The proposed law requires Iranian crypto exchanges to be licensed by the Central Bank of Iran and conform to the country’s foreign exchange guidelines, although the details of this application of fiat money principles to cryptocurrency is unclear. If Iranian exchanges are listed with the Central Bank of Iran, it will, in theory, be easier for American or local authorities to monitor for sanctions violations involving cryptocurrency.
IRS Hiring Professionals to Audit Crypto Tax Returns- In a letter made public this morning, the IRS announced that it will be outsourcing the audit operations of cryptocurrency tax returns to a select group of tax professionals with expertise on the matter: “The Internal Revenue Service is engaging outside contractors to assist our Revenue Agents in calculating taxpayers’ gains or losses as a result of their transactions involving virtual currency. We are placing a few single-case contracts as pilots with a goal of publishing a solicitation and request for proposal for a larger multi-case contract.” In the attached sample of work, the IRS requests help with: data ingestion, report preparation and data analysis, error resolution and revisions, as well as meeting participation and trial support.
Japan's Financial Watchdog Certifies Two Cryptocurrency Regulatory Organizations- According to an announcement issued 30 April, Japan’s Financial Services Agency (FSA) certified the Japan STO Association and the Japan Virtual Currency Exchange Business Association (JVCEA) as SROs, meaning there is now legal basis to their regulation: “Until now, we have set the self-regulations that crypto-exchanges (JVCEA member companies) have to follow as long as they offer spot and/or derivative trading of crypto-assets, however, our activities/self-regulation as to crypto-derivative trading was not based on a legal basis (as crypto-derivative business was not covered by law),” said JVCEA, explaining that Japan just enforced its revised Financial Instruments and Exchange Law (FIEL), which requires businesses offering crypto derivatives trading to register as a Financial Instrument Business (FIB).
Congress Has Now Introduced 32 Crypto And Blockchain Bills- Members in the House of Representatives and U.S. Senators have introduced a total of 32 bills in the 116th Congress. Twelve bills address the use of cryptocurrency in potential terrorism, money laundering, human, and sex trafficking. Thirteen bills focus on the regulatory framework and treatment of cryptocurrency and blockchain. Five bills promote ways blockchain technology could be used by the U.S. Government and the two newest bills cover the concept of a digital dollar.
FATF Extends Assessment and Follow-up Deadlines- The international regulatory body for financial crime, the Financial Action Task Force (FATF) extended its assessment and follow-up deadlines due to the “gravity of the COVID-19 situation globally, and the consequent COVID-19 related measures that countries have adopted,” it said in a press release yesterday. These measures “are making it impossible for assessed jurisdictions and assessors alike to conduct on-site visits and in-person meetings.” The FATF also issued a general pause on the review process for high-risk jurisdictions by providing an additional four months for deadlines, while countries like Mongolia and Iceland have elected to continue on the same schedule. The FATF release closed: “we remain vigilant to the threats posed by criminals and terrorists who may seek to exploit this period to further their criminal objectives.”
South African Regulators Propose Strict Crypto Framework- South Africa’s Intergovernmental Fintech Working Group (IFWG) recommended that cryptocurrency “remain without legal tender status” in a roadmap policy paper. “Crypto assets and the various activities associated with this innovation can no longer remain outside of the regulatory perimeter,” said the IFWG, whose members include the South African Reserve Bank, the Financial Sector Conduct Authority and the National Treasury, and others. “Payments using crypto assets will, in the interim period, be subjected to a regulatory sandbox approach,” the IFWG said. These recommendations are open for comment through May 15.
An EU Committee Calls for Crypto Rules w/ International Standards- The Committee on Economic and Monetary Affairs (ECON), the European Parliamentary group responsible for oversight of the European Central Bank, issued a call for the end of regulatory arbitrage, or the coordinated exploitation of different market frameworks. To accomplish this, the group proposes that cryptocurrency should be regulated at the international level: “rulemaking on cryptoassets should take place at the European level, preferably in the execution of international standards," said the group, warning that gaps in money laundering and terrorist financing activities are already being exploited as the EU is “clearly lagging behind on international AML/CFT laws." ALMD5, the EU’s directive on the matter, should update its definition of virtual currency to include utility tokens, in-game currency, and possibly central bank digital currencies (CBDC’s), the report said.
G20 Sets Ground Rules Ahead of Facebook's Libra Stablecoin- The Financial Stability Board (FSB), the financial regulator of the Group of 20 Economies (G20), on Tuesday issued ten recommendations for a common, international approach to the regulation of stablecoins. While the G20 recognized that country-to-country risk management can be inconsistent, the group recommended that stablecoins follow existing financial rules commensurate with the risks they generate, including operational resilience and safeguards to prohibit money-laundering and terrorist financing. “Relevant authorities should, where necessary, clarify regulatory powers and address potential gaps in their domestic frameworks to adequately address risks posed by global stablecoins,” the FSB said. The FSB’s public consultation is open until July 15, with a final report published in October.
Revised Crypto Laws in Japan to be Enforced Starting May 1- Japan’s new laws for the regulation of cryptocurrency will be enforced starting May 1, according to a government newsletter published this week. The Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA) were supposed to come into effect this month. The PSA requires oversight for cryptocurrency custodians, for instance mandating they use “reliable methods” like cold storage to keep client and operator funds separated. The FIEA expands the regulation of Initial Coin Offerings (ICO’s) and Security Token Offerings (STO’s). Currently, there are no official laws in effect to regulate cryptocurrency in Japan.
FATF Says US regulators ‘Largely Compliant’ With Virtual Currency Recommendations- The Financial Action Task Force (FATF) has rated U.S. regulations “largely compliant” with its revised standards for mitigating money laundering and terrorist financing (AML/CTF) in virtual assets. The assessment, published yesterday by the intergovernmental group, reviewed the U.S.’s compliance with its banking rules and regulations around digital assets. The U.S. has “minor deficiencies” in its standards around new technologies, known to the FATF as “Recommendation 15.” The FATF assessment also highlighted legislative gaps in record-keeping requirements, which may allow lower-level criminals to evade enforcement in the U.S..
Russia Delays Crypto Law Again, Blames Virus- Anatoly Aksakov, chairman of the Russian State Duma Committee on Financial Markets, says that the country’s crypto law, “On Digital Financial Assets” is now finalized but won’t be adopted until at least the end of Spring 2020, due to concerns about the COVID-19 pandemic. The regulation has been delayed several times since its introduction in January 2018. Aksakov added that the law will not hinder operation of local exchanges, and that the law will provide a definition of cryptocurrencies, and prohibit their use as payment. This differs from the recent claim made by a legal executive of Russia’s central bank, that the bill would ban the issuance and circulation of cryptocurrency.
New York Regulators Require Crypto Firms to Submit Coronavirus Plans- New York Department of Financial Services (NYDFS) sent a letter to all regulated institutions engaged in crypto-related activities on March 10, asking them to submit detailed “preparedness plans” to address the historic risk: “COVID-19 has already had adverse economic effects domestically and globally. It is critical that each regulated entity establish plans to address how it will manage the effects of the outbreak and assess disruptions and other risks to its services and operations.” The letter details the various contingencies and documentation that the regulator requires from these firms within 30 days.
US Congressman Introduces Crypto-Currency Act of 2020- On March 9, U.S. Representative Paul Gosar (R-AZ) introduced the “Crypto-Currency Act of 2020,” a bill that looks to provide oversight over a broad range of digital assets and clarify which U.S. regulator is responsible for which digital assets Will Stechschulte, Gosar’s legislative assistant, explained to Cointelegraph, “the bill looks to provide not only clarity but legitimacy to crypto assets in the United States.” The proposal divides digital assets into three categories: crypto-commodity, crypto-currency, and crypto-security, and proposes that the three categories be governed by the Commodity Futures Trading Commission (CFTC), the Secretary of the Treasury via the Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC), respectively. While some speculate the bill is “dead on arrival,” it provides insight into what a comprehensive new law governing cryptocurrency could look like.
South Korea passes one of the world’s first comprehensive cryptocurrency laws- The South Korean National Assembly passed new legislation last week that provides a framework for the regulation and legalization of cryptocurrencies and exchanges. The vote was passed unanimously and would allow South Korea’s financial regulators to have better oversight of the developing industry and to develop rules around anti-money laundering and other forms of financial crime. South Korea was an early adopter of Bitcoin, which in turn invited early scrutiny from its legislature. The new vote represents South Korea’s commitment to remain on the cutting edge of the industry. Exchanges like Bithumb are partnering with Chainalysis to better comply with the new regulations.
India's Crypto Ban Overruled- The Supreme Court of India overturned the cryptocurrency ban put in place in 2018 by the Reserve Bank of India (RBI), which ordered financial institutions to break off all ties with individuals or businesses dealing in virtual currency. Banks can once again process transactions to cryptocurrency businesses. "Today, we have seen the highest judicial court of India understanding the potential cryptocurrencies can hold in an economy. It definitely comes as a lesson for the rest of the world that mass adoption of cryptocurrencies will need the support of friendly regulation—and that this regulation may be most proactively developed if both industry leaders and lawmakers engage in honest, reflective dialogue," said Neeraj Khandelwal, Co-founder of CoinDCX, one of the remaining Indian exchanges that originally petitioned to overturn the ban.
The US Department of Treasury Discusses Regulations with Crypto Industry Leaders- The Treasury Department held a meeting with cryptocurrency industry leaders Monday to discuss the challenges inherent in the regulation of cryptocurrency. “We must ensure the balance between innovation and national security,” said Treasury Secretary Steve Mnuchin. “We are spending a lot of time on this on both an interagency basis and with regulators.” Mnuchin also noted that “significant new requirements” are coming from the Financial Crimes Enforcement Network (FinCEN), and that the Treasury “wants to make sure the technology moves forward, but that [cryptocurrency] is not used like the old, swiss, secret-number bank accounts.”
G20 Urges Countries to Implement Crypto Standards Set By FATF- The 2020 G20 Finance Ministers and Central Bank Governors Meeting concluded in Riyadh, Saudi Arabia, with the issuance of a statement concerning financial markets and the world economy. The group of 19 countries and the European Union, which collectively represent over 80% of the world’s GDP, reiterated the urgency for member States to implement the recently adopted Financial Action Task Force (FATF) standards for virtual asset service providers. They additionally requested that the Financial Stability Board (FSB) develop a roadmap to enhance global cross-border payment arrangements by October 2020 and report on different approaches to technology-enabled-solutions for regulation and supervision.
New Zealand Plans to Drop 'Unfavorable' Sales Tax Treatment of Cryptocurrencies- New Zealand’s taxation authority, the Inland Revenue Department (IRD), released a policy issue paper concerning the application of goods and services tax (GST) to cryptocurrencies and is now seeking public comments. The IRD’s position is that “the current GST rules provide uncertain and variable GST treatment making, using or investing in crypto-assets less attractive than using money or investing in other financial assets.” The proposal would not change the taxation of gains derived from the acquisition and disposition of cryptocurrencies since they would still be considered property for income tax purposes, but the paper does suggest making the favorable GST treatment retroactive to 2009.
2019 Crypto Tax Guidance May Not Be Binding Per GAO- The U.S. Government Accountability Office (GAO) issued a report concerning the Internal Revenue Service (IRS) guidance for the treatment of virtual currency transactions and found “the IRS could do more to help taxpayers comply,” with their tax obligations. According to the GAO, part of the previous guidance released in 2019 “is not authoritative because it was not published in the Internal Revenue Bulletin (IRB). IRS has stated that only guidance published in the IRB is IRS’s authoritative interpretation of the law. IRS did not make clear to taxpayers that this part of the guidance is not authoritative and is subject to change.” Likewise, the IRS made a statement after changing the language on their virtual currency webpage. While they previously listed the in-game virtual currencies “Roblox [sic] and V-bucks,” from the games Roblox and Fortnite respectively, as examples of “convertible” virtual currencies alongside Bitcoin, they clarified that “transacting in virtual currencies as part of a game that do not leave the game environment (virtual currencies that are not convertible) would not require a taxpayer to indicate this on their tax return.”
Two Key U.S. Officials Speak On Issues Facing Blockchain Technology- High-level U.S. government officials addressed regulatory concerns regarding digital assets while speaking in their personal capacities at separate conferences. U.S. Securities and Exchange Commissioner Hester Peirce proposed a “safe harbor” for token issuers that was predicated upon the premise that “our securities laws stand in the way of innovation.” Commissioner Pierce’s proposal would give token issuers a three-year window after initial token sales for networks to become sufficiently decentralized in order to escape the purview of federal securities regulations. The proposed rule would require more tailored disclosures while retaining the anti-fraud protections and bad actor disqualifications currently in place. Additionally, Federal Reserve Governor Lael Brainard said the Fed is “conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including CBDC [Central Bank Digital Currency].”
Trump's 2021 Budget Proposal Seeks to Optimize Crypto Policing- The U.S. President’s Office of Management and Budget submitted their FY2021 budget to Congress, which includes a legislative proposal to “create new efficiencies” in the oversight of cryptocurrencies by moving the U.S. Secret Service back to the Department of the Treasury from the Department of Homeland Security. In Treasury’s annual itemized budget request it seeks to add 108 Special Agents to Internal Revenue Service Criminal Investigation (CI) in order to expand cyber and virtual currency compliance. The request asks for an additional $40 million for these efforts, which is estimated to identify $197 million in annual tax revenue from under-reported tax liabilities and fraudulent tax refunds. The size and scope of the expansion proposal coincide with the National Strategy for Combating Terrorist and Other Illicit Financing calling digital assets a key vulnerability in the financial system that is exploited by criminals.
California Aims to Foster Fintech Innovation. Don't Say Sandbox- In an interview with Bloomberg Law, the Commissioner of the California Department of Business Oversight said the agency planned to create an Office of Innovation in San Francisco to “keep our finger on the pulse of what’s happening in financial services and innovation.” The Commissioner clarified that the program would not be a regulatory “sandbox” because businesses in the program will still need all applicable state licenses before testing products on customers. The proposed Office of Innovation would also be charged with providing regulatory guidance to cryptocurrency businesses, but the agency reportedly wants to use existing legal frameworks instead of creating a new unique licensing regime for cryptocurrency companies, such as New York’s BitLicense.
Over 1,000 Bitcoin Miners Granted Licenses in Iran: Report- Iranian Bitcoin miners that consume more than 30 kilowatts of energy must have a license from the Ministry of Industries, Mining, and Trade. Over 1,000 licenses were issued according to local media citing officials from the Iranian Information and Communications Technology Guild Organization. The officials estimate that cryptoasset mining in the country has the potential to add $8.5 billion to the economy of Iran. A licensing regime is sharply contrasted to the country's previous hostility towards bitcoin miners; for example, last year over 1,000 bitcoin mining rigs were confiscated by the government.
Singapore Announces New AML Rules for Crypto Businesses- The Monetary Authority of Singapore (MAS) implemented Singapore’s Payment Services Act 2019, which requires cryptocurrency businesses to apply for a license before engaging in “Digital Payment Token” services. Officials from the MAS claim that the laws provide a “forward-looking and flexible regulatory framework for the payments industry.” Likewise, the Ukrainian Minister of Finance gave an interview to local media that discussed the applicability of new money transmission regulations to cryptocurrencies. The updated rules in both Singapore and Ukraine are purportedly in accordance with FATF guidance concerning virtual assets.
Most Canadian Crypto Exchanges Likely Fall Under Securities Laws, After New Guidance- A notice published by the Canadian Securities Administrators (CSA) provided regulatory guidance to industry participants about the applicability of Canadian securities laws to cryptoasset businesses. The notice clarifies that some “platform operators” held the view that if they only allowed trading of commodities, such as Bitcoin, then the Canadian securities laws did not apply. However, the CSA’s new position is that “platforms [that] are merely providing users with a contractual right or claim to an underlying crypto asset, rather than immediately delivering the crypto asset to its users … are generally subject to securities legislation.”
Congress Takes Step Toward a de minimis Tax Exemption- The Virtual Currency Tax Fairness Act of 2020 was introduced in Congress with bipartisan support. If passed, the bill would render virtual currency transactions with less than $200 of capital gains as de minimis, thus excluding these amounts from personal income for tax purposes. By extension, this would also allow people to exchange small amounts of virtual currencies without undergoing the recordkeeping burden of calculating capital gains or losses. Tax laws may be changing abroad as well. The South Korean government is reportedly considering a 20% tax on virtual currency capital gains and the new Russian Prime Minister has voiced his objective of taxing all cryptocurrency transactions
SEC Issues Alert About “Initial Exchange Offerings”- The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy issued an alert clarifying that digital assets offered and sold to the public via Initial Exchange Offerings (IEOs) would be subjected to the same “facts and circumstances” analysis that ICOs undergo. At the state level, the Texas State Securities Board called cryptocurrency offerings a top threat facing investors in a newly published investment guide and New York Governor Andrew Cuomo’s 2020 agenda touched on virtual currency regulation. Governor Cuomo’s proposals included amending the Financial Services Law (FSL) so that entities licensed under the FSL, such as virtual currency entities, would be required to pay the Department of Financial Services in order to cover the costs associated with examinations and oversight.
The Qatar Financial Centre (QFC) Regulatory Authority recently clarified to reporters that “Virtual Asset Services may not be conducted in or from the QFC at this time.”
Dark Web Marketplace Goes Dark- Empire Market, a popular darknet marketplace known for drug transactions, has been offline since last week, in a likely exit scam. After the closure of AlphaBay and Hansa, Empire Market became a leading trafficker of drugs, malware, fake identification, among other illicit goods. Dark web sites typically provide escrow services for large transactions, thus giving administrators access to customer funds, possibly millions of dollars in cryptocurrency. Since the site shut down, customers have complained of individual losses worth thousands of dollars.
Chainalysis in Action: Department of Justice Announces Takedown of Two Terrorism Financing Campaigns with Help from Blockchain Analysis- Last Thursday, the Department of Justice (DOJ) announced the disruption of two terrorism financing campaigns that utilized cryptocurrency donations (and a third that didn’t), following a multi-agency investigation conducted by the FBI, HSI, and IRS-CI. The investigation led to the largest ever seizure of cryptocurrency assets related to terrorism financing. We’re proud to say that Chainalysis tools aided in these two investigations. For a detailed analysis of the two cases that involve cryptocurrency fundraising campaigns by al-Qaeda and the al-Qassam Brigades, see our blog. Al-Qaeda specifically relied on BitcoinTransfer, a cryptocurrency exchange based in Idlib, Syria that has facilitated several other financing campaigns associated with the group. You can read a full breakdown of BitcoinTransfer’s operations and transaction history in our newest intelligence brief here.
Treasury Targets Chinese Persons Involved with Drug Trafficking Organization Moving- Last week, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) designated four individuals and one entity pursuant to the Kingpin Act. These individuals were providing support to the Zheng Drug Trafficking Organization (DTO), run by Chinese synthetic opioid trafficker Fujing Zheng. OFAC also designated Global United Biotechnology Inc. for being owned or controlled by the Zheng DTO. The Zheng DTO manufactures and distributes hundreds of controlled substances including many fentanyl analogues.The Zheng DTO laundered its drug proceeds in part by using digital currency such as bitcoin, transmitted drug proceeds into and out of bank accounts in China and Hong Kong, and bypassed currency restrictions and reporting requirements.
HSI Adds Venezuelan Official to Most Wanted List, $5M Reward Offered for Information Leading to His Arrest, Conviction- Homeland Security Investigations (HSI) New York announced Monday that a Venezuelan official has been added to the agency’s Most Wanted List and as a target of the U.S. Department of State’s (DOS) Transnational Organized Crime Rewards Program in an effort to end corruption and criminality tied to the Maduro regime in Venezuela. This investigation was conducted by HSI New York’s El Dorado Financial Crimes Task Force. Through the rewards program, up to $5 million is being offered for information leading to the arrest or conviction of Joselit de la Trinidad Ramirez Camacho, a Venezuelan government official accused of having deep political, social and economic ties to multiple alleged narcotics kingpins. Ramirez Camacho currently serves as the superintendent for Venezuela’s Petro initiative, a cryptocurrency supposedly backed by the country’s oil and mineral reserves. He has been indicted in the Southern District of New York for violations of the International Emergency Economic Powers Act, the Kingpin Act, and other sanctions imposed by the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC).
Crypto Payments for Child Porn Grew 32% in 2019- Cryptocurrency payments for child sexual abuse material (CSAM) grew 32% last year, according to Chainalysis data shared in our latest blog post. Payments to illicit sites approached approximately $1 million USD in bitcoin and ethereum, based on the value of the cryptocurrency at the time of transaction. Nina Heyden, Chainalysis economist, said that many payments are made directly from cryptocurrency exchanges: “The good thing about that is those exchanges often cooperate with law enforcement when law enforcement requests more information during investigations.”.
DoJ: Coinbase Aids Darknet Drug Bust- The FBI exploited “crypto-rookie” errors to catch alleged darknet drug dealer William Burgamy who ran the NeverPressedRX store. An undercover agent received a mass email from Burgamy, which was sent via the email service provider Mailchimp. While the email itself was encrypted, it was discovered that Burgamy had used his Comcast IP-address to set up both his Coinbase and Mailchimp accounts. The FBI had tracked Burgamy’s store for several months. Burgamy was apprehended at his home with high-quality pharmaceutical stock, as well as several weapons. G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia, said in an April 9 release: “I want to offer thanks and praise to our local law enforcement partners for moving forward with this public safety investigation amidst the COVID-19 pandemic.”
Russian Darknet Criminals Exchange Fake Cash for Crypto- A Russian criminal group has sold more than 1 billion counterfeit Russian rubles in exchange for cryptocurrency, a scam worth around $13 million US Dollars. The criminals targeted Russia’s largest darknet marketplace, Hydra. High quality forged banknotes were sold in a virtual store operating as the “Bank of Russia” (Russia’s central bank is the Central Bank of the Russian Federation). The fake banknotes were first spotted in Tatarstan, before spreading to several regions, an April 7 report from Russian news agency Kommersant alleges. While this is an unusual case, in September 2019, Portuguese police and Europol seized funds in a similar scam.
Coronavirus Lockdown Slowing Darknet Sales- No category of spending is insulated from the COVID-19 pandemic, Chainalysis has shown in its latest blog post. While over $600 million worth of bitcoin was spent on darknet markets in the last quarter of 2019, the daily averages in activity have dropped recently, likely due to uncertainty around price stability and possibly even supply chain disruptions caused by the global pandemic.
Blockchain Analysis Helps Bust Owner of Child Sexual Abuse Material Site- A federal grand jury in the District of Columbia indicted Dutch National Michael R. M. aka “Mr. Dark,” for his operation of Dark Scandals, a Darknet and Clearnet site that featured violent rape videos and child sexual abuse material. Chainalysis is proud to have provided technology to assist in the investigation. The nine-count indictment was unsealed last week along with a civil forfeiture action. The defendant was charged with various counts of Distribution of Child Pornography, Production and Transportation of Obscene Matters for Sale or Distribution, Engaging in the Business of Selling or Transferring Obscene Matter, and Laundering of Monetary Instruments. Don Fort, Chief, IRS Criminal Investigation said: "Criminals should know if you leave a digital footprint, we will find you. If you thought you were anonymous, think again. The dark web is not quite as dark today due to the hard work of IRS-CI and our partner agencies."
US Marshals Will Auction $40M in Bitcoin This Month- Later this month, the United States Marshals Service will auction over 4,040 Bitcoins that were forfeited in federal criminal, civil, and administrative cases involving the cryptocurrency. In order to bid on the multiple 500, 100, and 50 Bitcoin lots, the prospective purchasers must make a $200,000 deposit with the law enforcement agency. The auction listing indicates the Bitcoins were forfeited as a result of numerous cases led by the Drug Enforcement Administration (DEA), Federal Bureau of Investigation (FBI), Homeland Security Investigations-U.S. Customs and Border Protection (HSI-USCBP), Internal Revenue Service (IRS), United States Postal Inspection Service (USPIS), and numerous other civil and criminal cases. Relatedly, the DEA’s 2019 National Drug Threat Assessment discussed the role of virtual currency plays in the modern illicit drug trade, including the importance of unlicensed and peer-to-peer exchanges to drug vendors.
Man Pleads Guilty to Distributing a Designer Drug that Caused the Death of a Minor- A California man pleaded guilty for distributing the hallucinogenic designer drug 25I-NBOMe that led to the overdose death of a juvenile. The man imported the drugs using the now-shuttered Silk Road darknet market in 2012 and distributed the drugs to a middleman, who then sold the drugs to the boy. The boy fatally overdosed after taking four doses of the drug. For the death, the man was convicted of involuntary manslaughter in 2017 and was sentenced to six years in prison.
Illinois Man Sentenced to 13 Years for Trafficking Millions of Counterfeit Pills on Darknet- Last April a 24-year-old Illinois man pleaded guilty to trafficking at least 4.3 million counterfeit Xanax pills that he manufactured in “his unsanitary garage” for sale on darknet drug markets. He was just now sentenced to 13 years in federal prison for the drug charges and the subsequent money laundering operation that was required to obscure the source of the illicit funds. Similarly, a woman was indicted for allegedly distributing heroin and methamphetamine on Wall Street Market under the moniker “RaptureReloaded.” She was apprehended at the U.S.-Mexico border while attempting to enter the U.S. and if convicted on all counts, she faces a mandatory minimum term of five years’ imprisonment.
U.S. Cyber Command Helps Prosecutors Seize Stolen Cryptocurrency Traced to Illicit N. Korea Nuclear Weapons Program- Last week, the U.S. Department of Justice unsealed a civil forfeiture complaint against the holders of 280 cryptocurrency addresses involved in the laundering of approximately $28.7 million worth of cryptocurrency stolen from an exchange by the North Korea-affiliated hackers known as Lazarus Group. The complaint also analyzes fund movements associated with a second exchange hack the group carried out. These cases highlight the increasingly sophisticated money laundering techniques Lazarus Group is employing in their efforts to launder funds stolen from cryptocurrency exchanges. However, investigators with the FBI, HSI, IRS-CI, and other agencies were still able to trace the funds, and in some instances, exchanges were able to prevent the hackers from depositing or trading the stolen funds on their platforms. Read more about the sophisticated obfuscation techniques of the Lazarus group and the government’s use of blockchain analysis on our blog. Relatedly, on Monday, the U.S. Department of State’s Bureau of International Security and Nonproliferation, the Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint advisory to alert persons globally to North Korea’s ballistic missile procurement activities.
CFTC Seeks $572 Million in Penalty and Restitution from the Owner of 'Fraudulent' Bitcoin Scheme Control-Finance- The U.S. Commodity Futures Trading Commission (CFTC) is seeking $572 million in penalty and restitution from "fraudulent" bitcoin trading group Control-Finance. In a judgment filed by the CFTC with the Southern District of New York last Thursday, Control-Finance owner and sole director Benjamin Reynolds will have to pay the penalty of $429 million and the restitution charge of $143 million, having failed to respond to the original complaint from June 2019. Reynolds is accused of appropriating over 20,000 bitcoins, worth $147 million at the time, from over 1,000 customers through a pyramid scheme. The Control-Finance “Affiliate Program” fraudulently collected bitcoin deposits from customers promising lucrative trading profits, according to the previous complaint. Reynolds will be barred from trading in cryptocurrency.
Lazarus Hackers Target Cryptocurrency Orgs with Fake Job Offers- The North Korean hackers known as the Lazarus Group have been connected to a spear-phishing campaign, according to F-Secure Labs. The hackers used a Word document to inject malicious macro embedded code into victims’ computers, which would then feed system information directly into the hacker’s command-and-control servers. "On all but a single host, which was powered off halfway through the intrusion and therefore unreachable, Lazarus Group was able to securely delete traces of any of the malware they employed as well as significant quantities of forensic evidence," the researchers found. The bit.ly link was accessed dozens of times since early May 2019 in the United States, the United Kingdom, Germany, Singapore, the Netherlands, Japan, and other countries. We previously highlighted this tactic and its use by Lazarus Group in our 2020 Crypto Crime Report.
UK Crackdown Pulls Thousands of Crypto Scams Offline- According to an announcement last week, the National Cyber Security Centre (NCSC), the cybercrime unit of the UK Government Communications Headquarters (CGHQ), removed over 300,000 URLs pointing to illegitimate celebrity-endorsed investment opportunities, at least half of which belonged to fraudulent cryptocurrency schemes. These schemes used celebrity images such as those of Ed Sheeran and Richard Branson to imply endorsement. “These investment scams are a striking example of the kind of methods cyber criminals are now deploying to try to con people. We are exposing them today not only to raise public awareness but to show the criminals behind them that we know what they’re up to and are taking action to stop it,” said Ciaran Martin, CEO of the NCSC. Cointelegraph recently reported that the United Kingdom Advertising Standards Authority (ASA) and the Internet Advertising Bureau (IAB) have launched a new system to help detect and remove fraudulent online ads.
Banana Fund Slips into Hands of Justice- The United States has filed a complaint to forfeit approximately 482 bitcoins and 1,721,868 tether (collectively worth approximately $6.5 million), against the administrator of the “Banana Fund,” a Ponzi scheme that sourced money from investors for a nonexistent entrepreneurship platform. The fund raised over 500 bitcoins, and in 2018, announced to its investors that the effort had failed and funds would be returned after being converted to stablecoins. The administrator withdrew bitcoin for his own personal use, and no funds were returned. The United States Secret Service’s investigation located 482 bitcoins and 1,721,868 tether, shy of the 557 bitcoins and approximately 1.73 million tether claimed to have been amassed by the administrator. “The complaint demonstrates that the Secret Service will continue to hold foreign and domestic criminals accountable, to include crooked cryptocurrency schemes that attempt to defraud American citizens,” said Thomas Edwards, Special Agent in Charge of the United States Secret Service’s San Francisco Field Office.
PlusToken Executives Arrested in China- As many as 27 suspects in the PlusToken scam -- one of the largest cryptocurrency exit scams -- have been arrested in China, according to a July 30 report. Investors reportedly lost over $5 billion after the South Korean-based exchange was exposed as a fraud. Our report from last year covers how the PlusToken team used digital currency mixers like Wasabi Wallet to cover their paper trails, before laundering the stolen funds through independent OTC brokers.
Steve Wozniak Sues YouTube Over Twitter-Like Bitcoin Scam- Steve Wozniak, co-founder of Apple Inc. sued YouTube over the prolonged use of his name and likeness in a bitcoin giveaway scam, similar to the recent Twitter hack. According to the lawsuit, scammers used images and video of Wozniak to convince YouTube users that he was hosting a live giveaway where he would return double the amount of bitcoins sent to him, just like in the Twitter hack. The scam also used the names and likenesses of Bill Gates, Elon Musk, and others. “YouTube has been unapologetically hosting, promoting, and directly profiting from similar scams,” said Wozniak, who sued along with 17 other alleged victims of the scam, seeking immediate removal of the videos and compensatory and punitive damages.
New York Man Charged with Defrauding Investors of more than $4.5 Million in Cryptocurrency Scheme- Jae Woo Kim, 27, of New York, has been charged with one count of wire fraud for scheming to defraud investors of more than $4.5 million in cryptocurrency. On July 16, Kim appeared before U.S. Magistrate Judge Sallie Kim to face charges. The complaint alleges that Kim presented himself as a cryptocurrency trader and sought loans to sponsor alleged scams whereby the assets he received were transferred to gambling or other websites outside of the U.S. Kim has been trying to solicit new loans since February 2020. If found guilty, Kim could receive a sentence of 20 years and a $250,000 fine.
South Korea investigating a $16 million FutureNet digital currency scam-Police in Seoul are investigating a Ponzi scheme that has defrauded over 2 billion won ($16.7 million) from investors through digital currency transactions. In March of 2019, the Polish government’s Office of Competition and Consumer Protection warned its citizens that FutureNet, a cryptocurrency-based multi-level marketing company headquartered in Poland, is likely a Ponzi scheme. Indeed, FutureNet operates as a ponzi scheme, encouraging its users to expand its network, selling digital advertising packages through cryptocurrency transactions. Users buy the packages in Bitcoin and receive returns in FuturoCoin (FTO), the native cryptocurrency of FutureNet. Chainalysis published an Intelligence Brief analyzing the unusual connections FutureNet has with the companies it uses to facilitate cryptocurrency payments to and from victims
Kazakhstan Citizen Known as "fxmsp" Charged in Computer Fraud- Andrey Turchin, also known as “fxmsp,” was indicted in Seattle in relation to various federal crimes stemming from a cybercrime group that hacked corporate, education, and government networks in a series of financially motivated crimes. Turchin, a citizen of Kazakhstan, was apprehended through cooperation of the FBI and Kazakh authorities. Turchin would sell the illicitly obtained network access on underground forums. His “fxmsp” group has been linked to numerous high-profile cyber attacks. Turchin is charged with conspiracy to commit computer hacking, two counts of computer fraud and abuse (hacking), conspiracy to commit wire fraud, and access device fraud.
COVID-19 Fraud Domain Seized from Seller Who Attempted to Sell It Using Bitcoin- The United States Attorney’s Office for the District of Columbia obtained a warrant for the seizure of the fraudulent domain coronaprevention.org. The warrant alleges that the owner of the domain posted it for sale following the President’s declaration of a national emergency due to the COVID-19 pandemic. The listing on the hacker’s forum stated that the domain would help to sell “high markup in-demand products.” The seller engaged an undercover Homeland Security (HSI) agent in discussions contemplating the use of the site to market fraudulent testing kits. Said U.S. Attorney Timothy J. Shea, “This Office will not allow fraudsters to use anonymous online spaces and cryptocurrency to hide their harmful activities and prey on victims.”
Bizarre Claims Made by Fast-growing Crypto Ponzi Scheme in China- There’s a new bitcoin-related Ponzi scheme in China. The scheme claims it has already attracted 180,000 bitcoin ($1.2 billion USD), which is likely a very large exaggeration. Antimatter Kingdom, or AKM, is claimed to run on the Capital Cell Fission Blockchain (CXC), according to its website, which also makes the bizarre assertion that CXC will “compete with the cruel cosmic entropy law and make the development of commercial civilization lasting and orderly.” Dovey Wan, a prominent member of the Chinese crypto community, tweeted that the scheme is enjoying “decent popularity” in Asia and estimated that around 5,000 BTC has fallen into the hands of the scammers.
CFTC Charges Florida Resident With Defrauding Crypto Investors Out of $1.6M- The Commodity Futures Trading Commision (CFTC) charged a Florida man and his company, “Fintech Investment Group, Inc.” with fraud for marketing “Compcoin” as a key to a proprietary foreign exchange trading software, which in turn promised that investors would receive high returns of over 10% per quarter. The scheme generated $1.6 million. “The CFTC remains committed to protecting market participants from fraudulent schemes, including novel forms of fraud like the one alleged here, where defendants allegedly solicited customers to purchase a digital asset in order to gain access to Fintech’s purported forex trading algorithm,” CFTC Director of Enforcement James McDonald said.March
Bitcoin Scam Results in Jail Time for Two Canadians- The U.S. Attorney for the District of Oregon sentenced two Canadian Nationals to 24 months in federal prison for conspiring to commit wire fraud and money laundering. The pair used a Twitter account to impersonate a customer service representative from the Hong Kong- based virtual currency exchange HitBTC. The scammers convinced the Oregon victim to provide access to her HitBTC wallet and email. Two days after transferring funds, the pair were in Las Vegas buying a Mercedes and gambiling at high-stakes tables. The FBI led the investigation. The pair was arrested at Las Vegas’ McCarran International Airport in July 2019.
International and Domestic Criminals Face Justice For Crypto Crimes- Three federal cases involving cryptocurrency investment fraud developed this week. The founder of an allegedly fraudulent cryptocurrency investment scheme that raised $35 million from more than 100 investors has been criminally charged by federal prosecutors and civilly charged by both the Securities and Exchange Commission and Commodity Futures Trading Commission. Two Arizona residents were charged with similar crimes and a Michigan man has been sentenced to prison and ordered to pay over $208k in restitution for perpetrating a different cryptocurrency investment scam. Internationally, a darknet market drug dealer in England was sentenced to eight years and another alleged dealer was arrested in India.
Scams Dominate Crypto Crime in 2019- Chainalysis released its full Crypto Crime Report, breaking down the $11.5 billion worth of cryptocurrency transactions last year that were associated with criminal activity. Scams were by far the biggest type of crime in cryptocurrency in 2019 based on economic value, stealing roughly $4.3 billion worth of cryptocurrency from millions of victims. Download the full report here.
Two People Indicted For $30 Million Dollar Fraud Scheme Involving Blockchain Company- In parallel legal actions, the Department of Justice and U.S. Securities and Exchange Commission both charged an ICO issuer for allegedly using a fake identity to induce investments into a fraudulent ICO. The complaints claim that the issuer was previously sentenced to four years in prison in Canada from charges related to the mismanagement of a hedge fund, and this fact was concealed from ICO investors with the fake identity. Similarly, in another parallel action, a New York man was sentenced to 33 months in prison after the Commodity Futures Trading Commission found he viciously defrauded investors. Additionally, a New York doctor pleaded guilty to importing heroin and cocaine from the now-shuttered darknet market Dream Market.
Missouri Shuts Down Fraudulent Website and SEC Office calls “Digital Assets” a 2020 Priority- The Securities Division of the Missouri Secretary of State announced the issuance of a final order to cease and desist against an unregistered investment firm called Mavixbtc Limited, which promised 55% investment returns in as little as six days. The domain host for the company’s website complied with the order and took down the website after the company used an unknowing investment advisor’s FINRA registration as their own. Additionally, the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) publishedtheir 2020 examination priorities, which includes inspecting SEC-registered market participants that are engaged in the digital asset industry.
Crypto ‘Gray’ Markets Could Be Unintended Consequence of FATF Travel Rule- Following a panel at Consensus: Distributedthat explored the impact of the Financial Action Task Force (FATF) “Travel Rule,” industry leaders shared their divided opinions on the possibility of a “gray” market composed of unregulated exchanges where digital assets trade at lower prices. Chainalysis Global Head of Policy Jesse Spiro weighed in, pointing out that while pockets of regulatory arbitrage is a concern, a lot of illicit activity funneling into a given jurisdiction would have a significant impact, and eventually, that country would be forced to correct itself. “No jurisdiction wants to become labeled as a high-risk jurisdiction,” said Spiro. “If they do, their access to everything from lending to traditional financial services all become impacted.”
Cryptocurrency Typologies Report: Your Guide to Who’s Who on the Blockchain- As cryptocurrency adoption increases, everyone from law enforcement to financial institutions needs to learn more about opportunities and AML risks in the industry. Our Typologies Report has you covered. Read to get the full, data-driven breakdown on the key players in the cryptocurrency industry, including mining pools, crypto ATMs, darknet markets, and more!
Crypto Exchange FCoin Insolvent After Revealing Up to $130M Bitcoin Shortfall- The cryptocurrency exchange FCoin, which is less than two years old, revealed that “internal system errors” gave the exchange a deficit of between 7,000-13,000 Bitcoins in its asset reserves. The CTO of the exchange said the exchange was not hacked, but instead the potential liability of over $130 million resulted from a flawed incentive structure whereby traders received too many financial incentives for transacting on the exchange. He also claimed that the problem was “a little too complicated to be explained in a single sentence.” The exchange is no longer processing withdrawals, but the CTO claims he will “compensate everyone for their losses.”
New Chainalysis Research: Competition in Mining Pools- Bitcoin mining competition has increased exponentially since 2015, and will likely intensify when the upcoming halving in May reduces miners’ rewards. But how concentrated is that competition? And does it end when a new block is mined? In this report, we use on-chain data to analyze competition not just among mining pools, but also among exchanges receiving newly-mined Bitcoin — a crucial source of liquidity — when mining pools convert to fiat.
World’s Largest Bitcoin Mine Lures New Clients to Texas Hotspot- Japanese FinTech conglomerate, SBI Holdings Inc., and internet service provider, GMO Internet Inc., reportedly agreed to lease space in one of the largest cryptocurrency mining facilities in the world. The mining capacity would be rented from Northern Bitcoin AG, a German company that operates cryptocurrency mines in Rockdale, Texas, a city that was once home to an aluminum manufacturing industry but has recently pivoted to large-scale cryptocurrency mining. Relatedly, Bitcoin’s mining hash rate hit all-time highs this week as miners continue to contribute more computing power to the Bitcoin network across the world.
UK Regulator Wants Crypto Firms to Share Money Laundering Data- In a new policy proposal, the UK’s Financial Conduct Authority (FCA) said that it plans to extend the annual crime reports, which have been required of financial institutions since 2016, to the cryptocurrency sector. Under the proposal, "cryptoasset exchange providers and custodian wallet providers" must provide the FCA with a report about their financial crime risk, "irrespective of their total annual revenue." The FCA also hinted at “additional reporting obligations that we might require of cryptoasset businesses in the future.”
HSI and NY AG Nab AirBit Club Scammers- New York investigators unsealed an indictment against several participants in the fraud and money laundering ring AirBit Club. AirBit Club promised victims passive, guaranteed returns on cryptocurrency mining and trading. As early as 2016, users complained that attempts to withdraw money were met with delays and hidden fees, amounting to at least 50% of the requested withdrawal. The alleged operators of AirBit requested that victims purchase memberships in cash, or through third-party cryptocurrency brokers, and then laundered the proceeds through several domestic and foreign bank accounts, including the trust account of an attorney implicated in the case.
Woman Arrested and Cryptocurrency Seized- London’s Metropolitan Police arrested a 35-year old woman Wednesday following an investigation from the Met’s Proactive Money Laundering Team. Detectives connected the suspect to a large sum of fraudulently obtained Bitcoin. The woman allegedly established bank accounts to receive proceeds from fraudulent applications for “Bounce Back Loans,” a UK government small business COVID-19 relief program. The suspect then transferred the sums of money to her Bitcoin wallets. The suspect was found close to her address in Ipswich and arrested on suspicion of fraud, money laundering, and child neglect. “I would like to assure the public that the Met remain committed to working with institutions in the regulated financial sector and law enforcement partners to tackle organised financial crime and bring these serious criminals to justice,” said Detective Sergeant Ian Barrett.
American Darknet Vendor and Costa Rican Pharmacist Charged with Narcotics and Money Laundering Violations- A Grand Jury in the District of Columbia indicted David Brian Pate, 44, a United States and Costa Rican citizen, and Jose Luis Fung Hou, 38, a Costa Rican citizen, both of whom reside in Costa Rica, for the illegal sales of opioids on the darknet. The seven-count indictment charged counts of Conspiring with Persons to Distribute Controlled Substances, Distribution of Controlled Substances, Conspiring with Persons to Import Controlled Substances, Conspiring to Launder Money, and Laundering of Monetary Instruments. The pair used reshippers, escrow accounts, bitcoin, and international wire transfers to conduct their scheme, even shipping Oxycontin hidden inside maracas. “These charges are a warning to drug traffickers worldwide that neither the shroud of the darknet or of virtual currency can hide their illegal activities from the vigilance of U.S. law enforcement,” said Acting U.S. Attorney Michael Sherwin.
Wirecard Executive Transferred Large Amounts of Bitcoin from Dubai to Russia- The former chief operating officer of Wirecard, the disgraced German-based financial processing firm, reportedly used Bitcoin to move funds from Dubai to Russia. Wirecard filed for insolvency last month following allegations of improper accounting tied to billions of dollars missing from its balance sheet. COO Jan Marsalek has been missing for weeks, and according to a report published by Handelsblatt in Germany, he is now under the supervision of the Russian military in Moscow. A July report in the Wall Street Journal noted that "Mr. Marsalek liked engaging in late-night discussions about cryptocurrencies and their ability to move money without a trace."
Carlos Ghosn's son wired $600,000 in cryptocurrency to aid father's escape, report says- It appears that the son of former Nissan chief Carlos Ghosn’s wired $600,000 worth of cryptocurrency to support his father’s escape, according to a report published by Reuters. The payment was sent to the son of ex-Army Special Forces vet Michael Taylor, in addition to the $862,500 that Ghosn wired to Taylor’s company shortly before the escape. The payment was discovered as part of the United States’ efforts to prosecute the Taylors, who have been in jail in the US since May, as Japanese officials negotiate their extradition for the family’s role in Ghosn’s escape.
How the US Caught Flashy Nigerian Scammers- Two Nigerian nationals were extradited to the US after being apprehended by Dubai authorities for money laundering and cyber fraud. Dubai police recovered $40m (£32m) in cash, 13 luxury cars worth $6.8M, 21 computers, 47 smartphones and the addresses of nearly two million alleged victims of the cybercrimes they are being charged with. The pair are accused of impersonating employees of US companies and running “business email compromise” (BEC) schemes to convince recipients into wiring millions of dollars to their own accounts. After redirecting legitimate emails to their scam accounts, the fraudsters allegedly convinced companies to wire money to updated bank accounts, though the cash trail disappeared after the scammers’ accomplices or “money mules” converted the proceeds into bitcoin.
PlusToken Money Launderers Moving Funds This week, Some Stopped Short by Congestion- Blockchain observer Whale Alert alerted the cryptocurrency world today that funds stolen in the PlusToken ponzi scheme were on the move today. The scammer(s) transferred 789,500 ETH, worth about $186 million, in what appears to be an effort to launder their funds. The new wallet has since signed over 50 transactions to split the funds across dozens of other wallets. However, all but one of those transactions have yet to be confirmed due to their relatively low gas fee at a time when the Ethereum blockchain is congested. This report comes two days after PlusToken scammers moved another 26,316,339 EOS tokens, worth $67 million, to another wallet.
New York Man Charged In $100 Million Bitcoin Case- Vitalii Antonenko, 28, of New York, has been charged with hacking, trafficking in stolen credit card data, and money laundering with bitcoin, bank, and cash transactions. Last Wednesday, the U.S. attorney’s office in Boston served an indictment that could see him jailed for 20 years and fined up to $500,000. Antonenko was arrested at JFK airport in March of last year upon arriving from Ukraine, after being tied to two illicit bitcoin wallets totaling $94 million according to a Law360 report. Last year, Antonenko’s lawyers requested a psychiatric evaluation of their client, who claimed to have trouble communicating and suggested that he is working for the CIA.
Fact-Checking Recent Cryptocurrency Terrorism Financing Reports- Over the past several months, three instances of erroneous analysis have led to misleading headlines about terrorism fundraising using cryptocurrency, most recently earlier this week. In this blog, the Chainalysis team breaks down each case and shows where they went wrong. While these claims were speculative at best and inaccurate at worst, there are some legitimate instances of terrorist groups using cryptocurrency to raise money, and it's important to make that distinction on a subject as consequential as this.
U.S. Offers New “Guidance on North Korean Cyber Threat” Document- The U.S. Departments of State, the Treasury, and Homeland Security, and the Federal Bureau of Investigation have issued a new advisory on the cyber-threat of the Democratic People’s Republic of Korea (DPRK). The comprehensive resource includes coverage of the DPRK’s cyber-enabled heists and international money laundering activities, including the 2018 cyber-attack of a digital currency exchange, and the rogue state’s other “cryptojacking” schemes, typically malware that sends mined assets to servers located in the DPRK.
Two Chinese Nationals Indicted in DPRK-Linked Cryptocurrency Laundering Scheme- The United States charged two Chinese nationals with laundering more than $100 million in stolen cryptocurrency, acquired in a 2018 cryptocurrency exchange hack carried about by the North Korean state-sponsored malicious cyber group, Lazarus Group. Experts say that DPRK uses funds stolen from cryptocurrency exchanges to finance its weapons of mass destruction programs. The US Treasury’s Office of Foreign Asset Control (OFAC) placed sanctions on the two individuals, as well as 20 cryptocurrency addresses under their control. At the same time, the Department of Justice filed a civil forfeiture complaint naming another 93 cryptocurrency addresses and accounts. Together, these represent the largest action the United States has taken against North Korea’s cryptocurrency financing programs, coming just as North Korea resumed its missile tests for the first time in a few months. “The hacking of virtual currency exchanges and related money laundering for the benefit of North Korean actors poses a grave threat to the security and integrity of the global financial system,” said Timothy J. Shea, U.S. attorney for Washington.
Dutch Authorities Arrest 2 in Million-Euro Crypto Money Laundering Investigations- A statement issued by the Joint Chiefs of Global Tax Enforcement (J5) says the Dutch Fiscal Intelligence and Investigation Service (FIOD) arrested two separate Dutchmen in connection with two criminal investigations on suspicion of money laundering using cryptocurrencies. One of the cases involved laundering Bitcoin through the mixer Bestmixer.io prior to the service’s shutdown in May 2019. The FIOD shared data that was seized during the investigation of Bestmixer.io with the other J5 countries. Based on that data, “it cannot be ruled out that more international investigations by J5 countries will follow.” Additionally, a man pleaded guilty to conspiracy and tax evasion charges after defrauding more than 70,000 victims out of $147 million in a sham ICO of “Gem Coins,” whose tokens the defendant claimed were backed by billions of dollars’ worth of precious gems. Also, a former Microsoft software engineer was convicted of 18 federal felonies for stealing more than $10 million in gift card balances and selling them for Bitcoin, which was then laundered through an unnamed Bitcoin mixing service.
Ohio Resident Charged with Operating Darknet-Based Bitcoin “Mixer,” which Laundered Over $300 Million- The operator of the Helix bitcoin mixer was charged with money laundering conspiracy, operating an unlicensed money transmitting business, and conducting money transmission without a D.C. license. “The indictment alleges that Helix moved over 350,000 bitcoin – valued at over $300 million at the time of the transactions – on behalf of customers, with the largest volume coming from Darknet markets.” Furthermore, the mixer allegedly “partnered” with the darknet market AlphaBay to provide bitcoin laundering services while AlphaBay was still operating as one of the largest darknet markets in the world. Belizean law enforcement authorities executed a search warrant for a residence leased in Belize by the defendant, which allegedly led to substantiating evidence, according to the indictment.
Senior Adviser To “Silk Road” Operator Pleads Guilty In Manhattan Federal Court- A Thailand-based Canadian citizen, Roger Clark, who went by the moniker “Variety Jones” on the Silk Road darknet market pleaded guilty to one charge of conspiracy to distribute narcotics after being extradited to the United States. Clark was described as a “real mentor” by Silk Road founder Ross Ulbricht and may have even recommended that Ulbricht assume the name “Dread Pirate Roberts” or “DPR” in an attempt to develop a cover story regarding ownership of the website. The Canadian was paid hundreds of thousands of dollars for advising on security vulnerabilities on the site, technical infrastructure, and rules governing buyers and sellers on the site. Likewise, two other darknet market drug dealers pleaded guilty to their charges related to selling marijuana and fentanyl analogues.
Cryptocurrency Terrorism Funding Is Growing More Sophisticated- Bloomberg covers another excerpt from the Chainalysis Crypto Crime report, which analyzes the increased sophistication of cryptocurrency terrorism fundraising campaigns. In particular, a 2019 campaign from the Izz ad-Din al-Qassam Brigades (AQB), the military wing of Hamas and a designated terrorist organization, collected cryptocurrency donations worth tens of thousands of dollars with roughly double the number of individual donations in less than half the amount of time compared to a terrorism financing campaign that ran from 2016-2018.
FCA Becomes AML and CTF Supervisor of UK Cryptoasset Activities- The United Kingdom’s Financial Conduct Authority (FCA) is now the regulator charged with enforcing cryptoasset anti-money laundering and counter-terrorist financing (AML/CTF) regulations following the implementation of the European Union’s Fifth Anti-Money Laundering Directive (5AMLD). Cryptoasset businesses are now required to register with the agency before providing services within the country, and the regulatory regimecovers cryptoasset reporting requirements, supervision, and enforcement.
Money Laundering in Cryptocurrency: How Criminals Moved Billions in 2019- Fortune covered an excerpt from the anticipated Chainalysis 2020 Crypto Crime Report in which Chainalysis used blockchain analysis to expose how corrupt OTC brokers established a money-laundering infrastructure to move billions in illicit funds. For example, by analyzing transaction patterns, Chainalysis created a “Rogue 100” list of 100 suspected OTC brokers that are laundering illicit cryptocurrency proceeds on exchanges. The “Rogue 100” received more than $3 billion worth of Bitcoin over the course of 2019 and played an important role in the PlusToken scam.
American Darknet Vendor and Costa Rican Pharmacist Charged with Narcotics and Money Laundering Violations A Grand Jury in the District of Columbia indicted David Brian Pate, 44, a United States and Costa Rican citizen, and Jose Luis Fung Hou, 38, a Costa Rican citizen, both of whom reside in Costa Rica, for the illegal sales of opioids on the darknet. The seven-count indictment charged counts of Conspiring with Persons to Distribute Controlled Substances, Distribution of Controlled Substances, Conspiring with Persons to Import Controlled Substances, Conspiring to Launder Money, and Laundering of Monetary Instruments. The pair used reshippers, escrow accounts, bitcoin, and international wire transfers to conduct their scheme, even shipping Oxycontin hidden inside maracas. “These charges are a warning to drug traffickers worldwide that neither the shroud of the darknet or of virtual currency can hide their illegal activities from the vigilance of U.S. law enforcement,” said Acting U.S. Attorney Michael Sherwin.
A Japanese Court Just Ordered the Nation’s First Cryptocurrency Seizure- The Tokyo District Court has authorized Japan’s first cryptocurrency seizure. Police have already seized the $46,000 Bitcoin related to a hack suffered by the Coincheck exchange in 2018, according to a report from Kyodo. The seized BTC has been held by a doctor from Hokkaido and an executive from the Osaka Prefecture. Both men were arrested and accused of purchasing XEM through a dark web market, in violation of the country’s organized crime laws. In January 2018, Coincheck suffered a hack of $534 million NEM from its wallets, originally reported by Cointelegraph. The research found that personal computers belonging to Coincheck employees had been infected with a virus. The exchange suffered another data breach in June 2020.
German Regulator Seizes Illegal Crypto ATMs- BaFin, Germany’s financial regulator, is seizing bitcoin ATMs operated by “Shitcoins club.” BaFin ordered Shitcoin’s parent company KKT UG to cease trading crypto in Germany last February. CEO Adam Gramowski ignored the regulator's demands, according to financial news site Handelsblatt. Last Wednesday, authorities began closing “Shitcoins Club” storefronts and seizing ATM machinery. Germany as a whole has only 67 operational bitcoin ATMs, Shitcoins club operated about 17 bitcoin, litecoin, and ether ATMs in the country.
German Authorities Seize $30 Million worth of Crypto from Pirate Streaming Site- German authorities, with the help of Germany’s Federal Criminal Police Office and the U.S. FBI, seized €25 million (~$30 million) worth of bitcoin and bitcoin cash from the now-defunct pirate streaming site Movie2K. The Dresden public prosecutor's office announced the news, saying that Movie2K was operated illegally and distributed over 880,000 pirated copies of movies and TV shows between 2008 and 2013. The operator, who is now in custody, bought over 22,000 bitcoins (currently worth about $260 million) and then bought properties via crypto. Those properties have also reportedly been seized.
Venezuelan Military Officials Seize 315 Bitcoin Miners- Venezuela’s Ministry of Defense seized 315 bitcoin mining machines for mining without the necessary permit, as cryptocurrency mining is legal in Venezuela. The Bolivarian National Guard, otherwise known as the Armed Forces of Cooperation, announced the seizure on Monday in a Twitter post. Commander Adolfo Rodríguez Cepeda said that the machines were seized from miners "for not having the permit issued by the National Superintendence of Cryptoactives and Related Activities (Sunacrip).” Sunacrip is the regulator for cryptocurrency in Venezuela. According to local crypto news outlet CriptoNoticias, the machines were Antminer S9s and the collection of machines is worth approximately $90,000 at most.
Digital Dollar Takes Center Stage at Hearing before US Senate- The Digital Dollar was the focus of a Senate Banking Committee hearing on Tuesday. Paxos CEO Charles Cascarilla, Duke professor Nakita Cuttino, and former CFTC Chair and current Digital Dollar advocate Chris Giancarlo served as witnesses. “The world is asking what role America will play in the future of money. The choice is we either take a leadership role or accept that others will lead and enshrine their values in money,” Giancarlo said. Reactions varied with Committee Chair Mike Crapo (R-ID) warning that “the U.S. must have clear rules of the road in place that protect businesses and consumers without stifling innovation,” while Ranking Member Sherrod Brown (D-OH) asked, “why on earth would we trust big tech with our banking system?”
Russian National Pleads Guilty for Role in Transnational Cybercrime Organization Responsible for More Than $568 Million in Losses- A Russian national pleaded guilty for his role in one of the largest cyberfraud enterprises ever prosecuted by the U.S. Department of Justice, the Infraud Organization. One of its leaders, Sergey Medvedev, pleaded guilty to Racketeering Influenced and Corrupt Organization Action (RICO) conspiracy before a U.S. District Court Judge in Nevada, following an investigation led by U.S. Immigration and Custom Enforcement’s Homeland Security Investigations. For seven years, Infraud operated with the motto “In Fraud We Trust,” and was responsible for over $568 million in actual losses to institutions and private individuals through “carding” (stolen identification), stolen financial information, malware, and other illicit activities.
Major Crypto Firms Including Binance, Civic, Tron Targeted in Flood of Lawsuits- At least ten complaints were filed in the Southern District of New York on April 3, alleging that cryptocurrency tokens sold to U.S. investors were unregistered securities. Charges against many notable exchanges and operators and their individual executives were brought by the "litigation boutique" Roche Cyrulnik Freedman on behalf of the plaintiffs. Many complaints highlight the U.S. Security and Exchange Commission’s 2018 action against EOS maker Block: The firm agreed to pay penalties of $24 million for conducting an unregistered securities sale through its ICO. Richard B. Levin, FinTech attorney told Decrypt: “I don’t believe the court will dismiss the cases, and I also do not believe the courts are going to grant motions for a summary judgment either on behalf of the plaintiffs or the defendants.”
Global Stablecoins May Be Subject to Securities Regulation, Says IOSCO- The International Organization of Securities Commissions (IOSCO) published a 31-page report Monday examining the regulatory issues around stablecoins, which are cryptocurrencies whose prices are pegged to low-volatility assets such as fiat currencies or commodities like gold. The report features a hypothetical case study of a stablecoin set to act as a global currency, using a reserve fund and a governance board (much like Facebook’s Libra). They found such a scheme would fall under the purview of securities regulators. The report did not mention any stablecoins by name.
SEC Gets Win in Test of Authority to Regulate Cryptocurrency Sales- A Federal Judge issued an injunction against Telegram Group Inc., in a victory for the Securities and Exchange Commission (SEC). U.S. District Judge P. Kevin Castel wrote that the SEC had shown a “substantial likelihood of success” in prevailing against Telegram, the Dubai-based app accused of breaking investor protection laws in its 2017 $1.7 billion ICO. The opinion found that Telegram provided the coin purchasers with “a reasonable assurance of profit,” thereby satisfying the Howey test for the offering to be categorized as a security.
French Court Says Bitcoin is Money- A French court has ruled that Bitcoin is money, which could prompt more activity in the French cryptocurrency market. The ruling concerns repayment of a loan made to crypto investment company BitSpread by Paymium, an exchange based in Paris. The loan was made in 2014 prior to the 2017 hard fork that created Bitcoin Cash. Paymium claimed Bitspread owed a portion of the Bitcoin Cash it obtained as part of that hard fork. The court ruled that it did not, comparing Bitspread’s Bitcoin Cash to dividends earned on an investment, and demonstrating the court’s understanding of Bitcoin as a fungible asset, like money.The story was first covered in French in Les Echos last Sunday.
Two High-Profile Criminal Defendants Plead Not Guilty to Crypto Crimes- Reginald Fowler, an Arizona businessman that once owned a minority stake in the NFL’s Minnesota Vikings and was indicted for operating an unlicensed money transmitting business last year, rejected the prosecution’s plea offer. The offer to plead guilty to one felony and forfeit $371 million was formally withdrawn after Fowler would only agree to forfeit the funds still remaining in approximately 50 identified bank accounts. Fowler’s trial is scheduled to begin in April of this year. Similarly, Ethereum developer Virgil Griffith pleaded not guilty to accusations that he violated the International Emergency Economic Powers Act after presenting at a North Korean cryptocurrency conference last year. Griffith allegedly violated the U.S. sanctions regarding North Korea when he provided technical information to the attendees of the conference that would facilitate money laundering and sanctions evasion.
Police Arrest Three After Six Hong Kong Bitcoin ATMs Pilfered for HK$230,000 in First-of-its-Kind Crime in the City- Three men were arrested last week for allegedly stealing nearly HK $230,000 from 11 different bitcoin ATMs in Hong Kong. The men had exploited loopholes in the ATMs, withdrawing cash without official authorization. “I cannot reveal what the loopholes are. But any bitcoin transaction needs verification. Maybe the ring bypassed the verifying process before taking the money,” said superintendent Wilson Tam Wai-shun of the cyber security and technology crime bureau. Police also seized six smartphones. Superintendent Tam did not rule out more arrests.
Bitfinex Offers $400m Reward for Missing 2016 Bitcoin- Nearly 120,000 bitcoins were stolen from the exchange Bitfinex in August 2016. Bitfinex is now offering a reward in exchange for the stolen property, even to the hackers themselves: “This incident is a dark chapter in our exchange's history, and we are pleased to offer this reward as further evidence of our determination to obtain the lost property.” The stolen bitcoin minus 2019 recoveries are worth $1.344 billion today. Nearly 57% of the known stolen bitcoins we track live on Chainalysis Market Intel are from the Bitfinex hack, our Chief Economist Philip Gradwell tweeted this week.
Fighting Back Against SIM Swap Attacks with Blockchain Analysis- A SIM swap attack occurs when a cybercriminal tricks their victim’s mobile phone service provider into porting the victim’s phone number over to a new SIM card embedded in a device the hacker controls. If you think about all the services we access on our phones — email addresses, social media platforms, bank accounts, cryptocurrency wallets — you can quickly see how damaging these attacks can be. In this blog, we break down how SIM swap attacks work, examine their prevalence, and present a case study on how blockchain analysis can help investigators respond in cases where cryptocurrency has been stolen.
Lazarus on the Hunt for Big Game- Lazarus Group – the North Korean state hacking group behind the WannaCry worm, the theft of $81 million from a Bangladesh bank, the attacks on Sony Pictures, and many cryptocurrency exchange hacks — is implicated in a custom ransomware strain targeting wealthy companies, researchers from cybersecurity firm Kaspersky Labs said in a report published on Tuesday. Kaspersky attributed a new strain of ransomware called VHD to the group and found similar Tactics, Techniques, and Procedures (TTP) seen in previous Lazarus operations, as well as the use of Lazarus-linked MATA malware to install VHD onto victim computers.
Two Chinese Hackers Working with the Ministry of State Security Charged with Global Computer Intrusion Campaign Targeting Intellectual Property and Confidential Business Information, Including COVID-19 Research- A grand jury in Spokane Washington indicted two Chinese nationals with hacking into hundreds of companies, governments, non-governmental organizations (NGO’s), as well as individual dissidents, clergy, and activists in the United States and abroad. Sometimes the hackers acted in their own personal interests, and sometimes for the benefit of the Chinese Ministry of State Security (MSS) or other Chinese government agencies. On at least one occasion, the hackers sought to extort cryptocurrency from a victim entity, threatening to release the victim’s stolen source code on the internet. "The complicated nature of cyber investigations is only exacerbated when the criminal is backed by the resources of a foreign government. The nature and value of the material stolen by these hackers cannot just be measured in dollars and was indicative of being state driven. This case demonstrates the FBI's dedication to pursuing these criminals no matter who is sanctioning their activities,” said Special Agent in Charge Raymond Duda of the FBI’s Seattle Division.
Following the Twitter Hack- On Wednesday, July 15, Twitter accounts belonging to prominent individuals including Joe Biden, Barack Obama, Elon Musk, and many others were taken over by hackers who allegedly gained access to one of Twitter’s internal content moderation tools. Throughout the afternoon, they posted messages promising users that if they sent Bitcoin to the address given, they’d receive double that amount in return. On our blog, we discuss what happened, where the funds are now, and the broader impact of scamming on the cryptocurrency ecosystem.
Romanian Programmer Admits that He Helped Create Bitclub Network, a Fraud Scheme Worth at Least $722 Million- A Romanian man arrested in Germany admitted to his role in the BitClub Network, a cryptocurrency mining scheme that obtained at least $722 million from 2014 to 2019, according to U.S. Attorney Craig Carpenito. Silviu Catalin Balaci, 35, pleaded guilty by videoconference before U.S. District Judge Claire C. Cecchi to a superseding information hearing in which he was charged with one count of dual-object conspiracy to commit wire fraud, and to offer and sell unregistered securities. Balaci and his co-defendants were previously indicted in December 2019 in connection with the conspiracy. The BitClub Network was a pyramid scheme that promised investors shares of cryptocurrency mining pools, and rewarded its “dumb” members for recruiting more “sheep”, according to discussions Balaci had with his collaborators.
Crypto Firm Co-Founder to Plead Guilty in Celeb-Touted Scam- The third and final co-founder of Centra Tech, a cryptocurrency firm that scammed investors out of $25 million, plans to plead guilty. Sohrab “Sam” Sharma agreed to change his plea following the guilty pleas of the firm’s two other founders last Monday in New York. Sharma’s trial is scheduled for November. Centra Tech claimed to have developed a debit card known as the “Centra Card,” which would allow users to make purchases with digital currency at any location accepting Visa or Mastercard. The trio formed the company and leveraged the social media platform of the supercar dealership where they had worked together in Florida. Centra Tech duped investors out of more than $25 million during its initial coin offering. That ICO was promoted by DJ Khaled and Floyd Mayweather, who both agreed to settle charges with the SEC after failing to disclose that they had been paid for promoting the firm.
Tracfin Publishes Annual Report, 85% Increase in Cryptocurrency SARs- Tracfin, the French Financial Intelligence Unit, which is part of the French Ministry for Economy, Finance and Industry and the Ministry for the Budget, Public Accounts, the Civil Service and State Reform, published its 2019 report. The group reported an increase of 25% in data collection, and an overall increase in suspicious activity reports (SARs). Cryptocurrency SARs increased 85% over 2018, with 80% of the reports coming from banks.
Ferrari, McLaren and $15M in Crypto Seized as Chinese Police Bust Arbitrage Scam- Chinese police seized over $15 million in Bitcoin, Ether, and Tether, $2 million worth of supercars, as well as luxury villas from the perpetrators of a scam that sold counterfeit tokens. In an article published last Thursday, China’s Ministry of Public Security – the group that oversees China’s local police forces – said that the city of Wenzhou had arrested 10 individuals in relation to the fraud. The scam was purportedly run through the “Huobi Global Arbitrage HT Chinese Community” (not connected to Huobi) on the encrypted messaging app Telegram, and promised returns of 8%: “Simply put, you send one unit of ETH to a designated address, you will receive 60 HT. And then you can sell it to gain the difference,” the victim known as “Li”, who came forward in April, reportedly told the police. The HT Li received were fake tokens, and could not be deposited. The Ministry believes there are other similar scams operating currently.
Anonymity Services’ Role in Cybercrime- On our blog today, we review the use of cryptocurrency by anonymity services, a broad category of internet products that enable users to enshroud their internet business or presence with greater privacy. Virtual private networks (VPNs), virtual SIM cards, encrypted communication, anonymous postage, and bullet-proof hosting all provide anonymity services and many allow their customers to buy their products with cryptocurrency, adding another layer of privacy for their users. While there are many legitimate use cases for these services, we review the implications for law enforcement and compliance professionals interested in investigating criminals who take advantage of these services.
UCSF Hospital Paid $1.14m in Bitcoin after Ransomware Attack- The University of California San Francisco paid a $1.14 million ransom in bitcoin after an attack in early June, as investigated by the BBC. The Netwalker ransomware group is considered to be responsible for the attack, which encrypted the data on the UCSF’s School of Medicine’s servers, making it inaccessible. After negotiating the original $3 million ransom, UCSF agreed to pay the ransom of $1.14 million, transferring 116.4 bitcoins to Netwalker’s wallets. Following the transfer, the school received a decryption key to restore access to their data. In a statement, the school said it does not currently believe that any medical records were exposed, nor that the attack had any affect on patient care or COVID-19 related work. UCSF is now working with the FBI on the investigation.
NZ Police Seize $140m from Russian 'Computer Genius' Alexander Vinnik- The New Zealand Police Asset Recovery Unit seized $140 million, spread across offshore accounts and controlled by a New Zealand company, from Russian “computer genius” Alexander Vinnik. In 2017, Vinnik was arrested on vacation in Greece and placed under an extradition order from the United States, though he remains in custody in France. Vinnik is alleged to have laundered billions of dollars for criminal syndicates as the operator of BTC-e, which was a popular cryptocurrency trading platform until the U.S. government seized its domain. "New Zealand Police has worked closely with the Internal Revenue Service of the United States to address this very serious offending," Police Commissioner Andrew Coster said.
Australians Lost More Than $14M to Crypto Scams in 2019- More than 1,810 reports of cryptocurrency scams were filed by Australians in 2019, representing more than $21.6 million AU ($14.9 million USD). Scamwatch, part of the Australian Competition and Consumer Commission, released a study showing that it was mostly younger Australians – aged 25 to 34 – who were affected by these cryptocurrency investment scams. “Cloud mining farms became a common adaptation of this type of scam. Most were Ponzi schemes, with no real cryptocurrency involved,” said the report.
The Search for an Alleged $40 Million Crime Ring in South Korea- South Korean law enforcement uncovered an Ethereum crime ring, alleged to have gained over 50 Billion won ($40 million USD) in stolen funds. The scheme used Ponzi-like multi-level marketing tactics to acquire victims who expected high yield returns. So far, over 400 victims have come forward. The scheme is believed to have been worth as much as 100 Billion won, with thousands of victims affected. South Korean authorities are investigating over 100 suspects in the scheme. Three indictments have been made.
US Marshals Service Seeks Firm to Custody and Sell Crypto Seized From Criminals- The US Marshals haverequestedinformation related to virtual currency management and disposal services, updating earlier requests. The Marshalls need help managing and offloading the cryptocurrency seized in their investigations. “This includes but is not limited to such activities as accounting, customer management, audit compliance, managing blockchain forks, wallet creation and management, private encryption key generation and safekeeping, backup and recovery of private encryption key material, airdrops, etc., as well as future actions associated with the virtual currency forfeiture process,” read the request.
PlusToken Scammer Implicated in China’s Second Ten-Figure Crypto Ponzi- The Wotoken scam reaped about $1 billion worth of cryptocurrency from over 715,000 victims. The scam promised returns from an algorithmic trading platform that did not exist, and was most active during the summer of 2019. Six defendants pled guilty, including an individual associated with the PlusToken scam, with the court recommending prison terms between 6 months and 11 years.
Teen Wolf of Crypto Street- A U.S. cryptocurrency investor sued a suburban high school senior, accusing the 18-year-old of masterminding a cybercrime scheme that defrauded him of millions of dollars in digital currencies. The plaintiff, Michael Terpin, accused Ellis Pinsky, of Irvington, New York, and his alleged co-conspirators, “gang of digital bandits,” of stealing $23.8 million of cryptocurrency in January 2018, when the defendant was 15. Terpin is seeking triple damages of $71.4 million. Terpin said Pinsky and his team would steal from victims via “SIM swaps,” a type of hacking that convinces the victim’s mobile carrier to swap information from the victim’s original SIM card to one that the hacker possesses.
Now Some Good Coronavirus News: 33% Of Cryptocurrency Scammer Revenue ‘Wiped Out’ By COVID-19- A new Chainalysis report shows a 33% decline in USD-denominated bitcoin revenue since March 8: falling from $4.2 million to below $2.9 million, weekly. However, scamming volume remains constant, with losses owing to cryptocurrency price declines: “We find that the loss of value is caused almost entirely by cryptocurrency price drops. Nearly all of these scams have received the same or more value per day in their native coins since the crisis intensified in early March,” the report said. Although cryptocurrency scams exploiting Covid don’t appear to be very successful so far, the FBI issued a warning that citizens should be on alert for increased scamming attempts, and Chainalysis anticipates that scammers may increase their efforts to target ordinary people, especially the vulnerable, as governments send citizens relief funds, such as those outlined in the U.S. stimulus package.
Victims paid $144 million in bitcoin as ransom over last six years, says FBI agent- In a presentation from Joel Decapua, a supervisory special agent in the Global Operations and Targeting Unit (GoTu) within the cyber division at the Federal Bureau of Investigation (FBI), a slide showed that according to FBI data, victims have paid $144.35 million in bitcoin as ransom during 2013-2019. In his presentation, entitled “Feds fighting ransomware and how you can help,” Agent Decapua discussed collaboration with the industry especially with regard to major encryption technologies and what he described as the broader “cybercriminal ecosystem” of rogue virtual currency exchanges, encrypting services for malware, hacking forums, counter-anti-virus services, and marketplaces that sell access to private networks. The FBI’s response to these bad actors? “Lock them up, take their stuff, break their things,” said Agent Decapua.
Halting $9.8 Billion in Theft Is Key to Crypto Growth, KPMG Says- KPMG released a report Monday that claims that at least $9.8 billion in digital assets have been stolen by hackers since 2017 because of bad code and weak security. The report asserts that improving security is the key to growth for the $245 billion digital asset industry. “Institutional investors especially will not risk owning crypto assets if their value cannot be safeguarded in the same way their cash, stocks and bonds are,” Sal Ternullo, co-leader of KPMG’s crypto-asset services and co-author of the report, said. Even the established financial institutions, with the most mature compliance programs, must “enhance their methodologies to address the unique considerations for crypto-assets and related data-management challenges,” the report said.
Drug Dealer Loses £45m Bitcoin Fortune After Hiding Codes in Fishing Rod Case- An Irish cannabis grower purchased 6,000 Bitcoins with illicit proceeds in 2011 and wrote down his private keys on paper, which was then hidden inside a fishing rod case. Once he was arrested for cannabis-related offenses, his landlord discarded the fishing rod case, which was sent to a landfill and then to waste incinerators in China and Germany. The Irish Criminal Assets Bureau told media outlets that they are monitoring the public keys in case the Bitcoins move, but without the private keys the whale-sized Bitcoin fortune will remain inaccessible.
Dutch Police Hunt for Mail Bomber Who Demanded Bitcoin Payoff- A string of mail bombings across the Netherlands are suspected by police to be related due to the packages similarly demanding a Bitcoin ransom in order to stop the attacks. While there were no serious injuries reported, the latest two parcel bombs were the first to detonate in the mailrooms of their destinations, a large Dutch bank called ABN Amro and another unidentified Dutch business in the city of Kerkrade. An Amsterdam police spokeswoman would not disclose how much Bitcoin was demanded to the New York TImes, but officials compared the size of the blasts to small fireworks explosions that would have caused nonfatal injuries had anyone been holding them.
Bad Actors Rent Hashing Power to Hit Bitcoin Gold With New 51% Attacks- Bitcoin Gold (BTG) is a fork of the Bitcoin blockchain that occurred in 2017 and currently has a market capitalization of over $200 million. The Bitcoin Gold blockchain was maliciously mined with rented mining power from NiceHash and two double-spends occurred this week. Another Bitcoin fork, Bitcoin Cash (BCH), had miners propose a ZCash-style development fundthat would pay a portion of all BCH block rewards to a Hong Kong corporation that would promote the development of BCH. Bitcoin (BTC) also had a series of Bitcoin Improvement Proposal (BIPs) for the Taproot/Schnorr soft fork that would fundamentally change the privacy features of the Bitcoin blockchain.
London Judge Freezes Bitcoin From Ransomware Attack- A British court has ordered to freeze a nearly $1 million Bitcoin ransomware payment sent from an undisclosed Canadian company and subsequently deposited at the cryptocurrency exchange Bitfinex. The Canadian company’s insurance provider used Chainalysis’s investigative software tools in order to determine that the funds were deposited at the exchange. In the U.S., a Colorado man pleaded guilty to racketeering charges related to working as a moderator on the prolific darknet market AlphaBay, where he settled over 20,000 disputes between vendors and purchasers. Additionally, a San Francisco pill manufacturer was sentenced to over 16 years of prison after selling thousands of fentanyl-laced counterfeit oxycodone on darknet markets. The manufacturer admitted to making over $400,000 in Bitcoin from the scheme and used unlicensed bitcoin brokers to launder the profits.
How A Single Apple Mac Hack Scored North Korean Spies $7 Million In Cryptocurrency- Forbes covers an excerpt from the anticipated Chainalysis 2020 Crypto Crime Report that takes a deep dive into the cryptocurrency exchange hacks of 2019. Notably, “2019 saw more cryptocurrency hacks than any other year,” even though there have been worse years in terms of USD losses. One of the hacks scrutinized is the stolen funds from DragonEx, which is widely believed to be the work of the Lazarus group, an infamous cybercriminal syndicate linked to the North Korean government. Reuters also reports that U.N. sanctions experts are warning people to stay away from an upcoming North Korean cryptocurrency conference.
Should Banks Expect Cyberattacks from Iran?- Escalating tensions in the Middle East prompted the Cybersecurity and Infrastructure Security Agency (CISA) to issue an alertregarding the potential of an Iranian cyber response to the U.S. military strike in Baghdad. The Governor of Texas claims that attempted Iranian cyberattacks on state-owned systems have already increased and U.S. government websites have already been defaced with anti-American and pro-Iranian rhetoric, but there is currently no confirmation that the attack was state-sponsored. Financial media outlets are attributing the recent Bitcoin price spike to the conflict with Iran, touting the cryptocurrency’s role as a safe-haven asset.
BA in Economics. BS in Finance. Hostess of the Crypt Keepers’ Club. Passionate about research and data. I don’t fold sheets, I spread them.
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