In this issue:

Blockchain Enterprise Applications Continue to Emerge Across Industries

Crypto Loyalty Rewards, Custody and Stablecoin Initiatives; Equity Swap on Blockchain

Anti-Money Laundering a Global Concern; Australia Releases Blockchain Road Map

Enforcement Agencies Prosecute Crypto Fraud Schemes and Dark Market Actors

Blockchain Enterprise Applications Continue to Emerge Across Industries

By: Robert A. Musiala Jr.

A press release late last week announced that blockchain startup SIMBA Chain has been awarded a five-year, $9.5 million contract with the U.S. Navy “to deploy a secure, blockchain-based messaging and transaction platform, a critical need of the U.S. Department of Defense (DoD).” The contract is a Small Business Innovation Research (SBIR) Phase III contract that is a follow-on to an earlier contract for a working prototype. In the Phase III contract, SIMBA Chain “will focus on commercialization and full-scale implementation of the platform.”

In other enterprise news, a major U.S. bank and a leading U.S. blockchain development firm are reportedly engaged in discussions related to a potential merger between the blockchain development firm, which focuses on Ethereum applications, and the bank’s unit focused on the Quorum blockchain. According to another recent report, Hedera Hashgraph, an emerging proof-of-stake public/permissioned network, has selected the cloud service of a major U.S.-based technology firm to deploy its Hedera network. As part of the announcement, Hedera Hashgraph revealed that the cloud service provider has also joined the Hedera Governing Council, which governs the ongoing development of the Hedera network.

Finally, the Food Trust announced that it has onboarded a new member to its blockchain-based food traceability consortium. The new member is described as “the French market leader in the vegetable oil and protein industry.” In recent comments, a vice president at the major global technology company that runs the Food Trust noted that blockchain is “driving additional spend” in other technologies. The VP was quoted as saying, “When you look at the direct attribution of the actual dollars spent on blockchain, we are seeing that for every dollar spent, $15 is spent on other cloud services.”

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Crypto Loyalty Rewards, Custody and Stablecoin Initiatives; Equity Swap on Blockchain

By: Robert A. Musiala Jr.

Late last week, a major U.S. financial markets firm that operates 12 regulated securities and commodities exchanges announced an agreement to acquire a leading provider of loyalty solutions for merchants and consumers. According to the press release, the acquired firm “powers programs for seven of the top ten financial institutions and 4,500 loyalty, incentive and employee perk programs for companies across a wide spectrum of industries.” The press release notes that the acquired firm is intended to be integrated with Bakkt, the exchange for physically delivered bitcoin futures contracts. According to the press release, “Integrating with Bakkt will allow top retail brands to offer more innovative loyalty programs and help consumers unlock and access value in those programs.” In a related development, a recent report provided details on plans by the Catalan soccer team, FC Barcelona, to launch a blockchain token, termed the Barca Fan Token ($BAR). The token will reportedly be used by fans to influence club decisions and access other digital features and experiences involving the soccer team.

In news from the custody space, one of the largest U.S.-based cryptocurrency custody providers recently announced plans to expand its business to include new custodial entities in Switzerland and Germany. In payments news, a Canadian startup, Canada Stablecorp Inc., has launched its Canadian dollar stablecoin (QCAD), an ERC20 token backed 1:1 by Canadian dollars. And in a notable capital markets development, two major U.S. financial institutions recently completed what has been reported as “the first equity swap on a new blockchain built using tools originally designed for ethereum.” The transaction took place on Axcore, a private permissioned blockchain modeled in part on the Ethereum blockchain.

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Anti-Money Laundering a Global Concern; Australia Releases Blockchain Road Map

Australia rolled out its national blockchain road map this month, citing the technology’s importance in global markets and estimating the sector’s international business value at more than $175 billion by 2025. The 52-page road map outlines strategies that both the public and private sectors can utilize to overcome challenges and capitalize on new growth opportunities.

Social media networks with an eye on developing proprietary cryptocurrency projects are on notice by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to be mindful of anti-money laundering laws. “Social media and messaging platforms and others now focusing on the establishment of cryptocurrencies cannot turn a blind eye to illicit transactions that they may be fostering,” warned Jamal El-Hindi, the deputy director of FinCEN. The agency confirmed that it will create new rules and guidance as needed to ensure that new entrants comply with current anti-money laundering laws, with Treasury Secretary Steven Mnuchin recently warning that “significant new requirements” by FinCEN are on the horizon for the cryptocurrency industry.

Global regulatory agencies too are updating their regulatory frameworks as they relate to cryptocurrencies. Switzerland’s Financial Market Supervisory Authority (FINMA), for example, recently proposed an anti-money laundering provision requiring identification for all cryptocurrency-related transactions in amounts greater than $1,000, acknowledging “the heightened money-laundering risks in this area.”

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Enforcement Agencies Prosecute Crypto Fraud Schemes and Dark Market Actors

By: Jordan R. Silversmith

On Feb. 11, the United States Attorney for the Southern District of New York and officials from field offices of the Department of Homeland Security and the FBI announced the unsealing of an indictment charging Michael Ackerman, of Sheffield Lake, Ohio, with fraud and money laundering related to an alleged plot to defraud more than 100 people of more than $35 million through a false cryptocurrency investment scheme. The Securities and Exchange Commission (SEC) also filed a complaint against Ackerman, as did the Commodity Futures Trading Commission (CFTC). The SEC’s complaint was filed in New York federal court and charges Ackerman with violations of the anti-fraud provisions of federal security laws and seeks a permanent injunction, disgorgement plus prejudgment interest and a civil penalty. The CFTC’s civil enforcement action in the Southern District of New York was brought against Ackerman and his companies, Q3 Holdings, LLC and Q3 I, LP, charging them with fraudulently soliciting more than $33 million, purportedly to trade digital assets, and misappropriating a large portion of that total.

United States federal prosecutors have charged the CEO of a popular bitcoin media site and founder of a crypto wallet provider with conspiracy to launder money and operating an unlicensed money transmitting business. According to an arrest warrant filed earlier this month, Larry Harmon laundered approximately $311 million of bitcoins, which allowed the users of a privacy app named Helix and a darknet search engine named Grams to conduct transactions on AlphaBay, a known dark market shut down in 2017. Helix allowed users to mix their coins before spending them, a tactic that has been associated with money laundering and other illicit activities. Harmon was denied bail. He faces a 30-year prison sentence.

Officials in Sweden this week brought charges against the administrator and four associates involved in running Sweden’s largest darknet marketplace for drugs, Flugsvamp 2.0. The charges are reportedly based on a technically advanced investigation where police were able to monitor the suspects’ encrypted communications. Suspects are kept anonymous in Sweden; however, the Swedish Police Authority announced that the chief suspect is charged with offenses relating to narcotics, money laundering and falsification of a financial instrument, while the associates are charged with money-laundering offenses.

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