Abstract Digital network communication digital conceptIn this issue:

• Reports Detail New Plans for Crypto Custody Services, Payment Cards and ATS Platforms

• OCC Says Banks Can Custody Crypto, IRS and UK/FCA Act on Crypto Initiatives

• DOJ Charges Bitcoin ATM Operator/Crypto Fraudster, Canada Exchange Settles Charges

Reports Detail New Plans for Crypto Custody Services, Payment Cards and ATS Platforms

By: Robert A. Musiala Jr.

According to recent reports, a major multinational financial services firm is taking steps toward launching a cryptocurrency custody offering. The offering would reportedly be targeted at institutional clients.

In a press release this week, another major multinational financial services firm announced that it is expanding its program focused on helping emerging fintech firms bring cryptocurrency payment cards to market. The press release named Wirex as “the first native cryptocurrency platform to be granted a … principal membership, allowing it to directly issue payment cards.”

Another press release published this week provided new details on an initiative to enable trading on the tZERO Alternative Trading System (ATS) platform of blockchain-based shares that would represent an indirect ownership interest in a luxury hotel in Aspen, Colorado. According to the press release, the shares “were distributed to accredited investors through a Reg D 506 (c) offering, which closed in October 2018 and raised $18 million.”

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OCC Says Banks Can Custody Crypto, IRS and UK/FCA Act on Crypto Initiatives

By: Joanna F. Wasick

On July 22, the Office of the Comptroller of the Currency (OCC) released a letter in which it recognizes the ability of banks to offer cryptocurrency custody services to their customers, including holding unique cryptographic keys – a string of characters that, broadly speaking, allows a user to access his or her cryptocurrency. The letter explains that providing cryptocurrency custody services is in line with, and is the modern equivalent of, traditional banking custody services such as safe deposit boxes and vaults. The letter also specifies that banks can provide both fiduciary and nonfiduciary custodian services. Notably, the OCC letter is issued under the helm of the new acting comptroller of the OCC, Brian Brooks, who joined the OCC earlier this year and who previously served as chief legal officer at a major U.S. cryptocurrency exchange.

According to public records, the Internal Revenue Service (IRS) recently contracted with a major U.S. cryptocurrency exchange to use its proprietary blockchain analytics software. Last week, it was reported that the tax agency had negotiated a contract with another blockchain analytics firm based in the U.K. Also last week, the IRS, together with the Department of Treasury, reportedly commented during a webcast that in-progress guidance will address third-party tax reporting requirements for cryptocurrency transactions.

Earlier this week, in proposals issued by the British government, the Financial Conduct Authority (FCA), a financial regulatory body in the U.K., was authorized to regulate certain endorsements of cryptocurrencies. The action aims to end misleading advertising by unauthorized companies that promote cryptocurrencies, and would require regulated financial companies to obtain consent from the FCA before they approve an advertisement from an unauthorized business.

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DOJ Charges Bitcoin ATM Operator/Crypto Fraudster, Canada Exchange Settles Charges

By: Jordan R. Silversmith

This week, the United States Attorney’s Office for the Central District of California announced that a Yorba Linda man had agreed to plead guilty to federal criminal charges of operating an illegal virtual-currency money services business through in-person transactions and a network of Bitcoin kiosks. According to a Department of Justice (DOJ) press release, “[a]fter FinCEN contacted Mohammad in July 2018 about his need to register his company, Mohammad did so, but he continued to fail to comply fully with federal law concerning money laundering, conducting due diligence and reporting suspicious customers.” Mohammad admitted that, in total, he exchanged between $15 million and $25 million through the illegal money services business. According to the press release, Mohammad is expected to plead guilty and will face a statutory maximum sentence of 30 years in federal prison.

Last week, the United States Attorney’s Office for the Northern District of California announced that it had charged a New York man with wire fraud in connection with a bogus multimillion-dollar cryptocurrency investment scheme. According to the complaint and affidavit filed on July 9, Douglas Jae Woo Kim claimed that he was a cryptocurrency trader and requested short-term business loans from friends and acquaintances. Kim allegedly used cryptocurrencies to finance transactions in the scheme and then transferred some or all of his victims’ assets to online gambling sites outside the United States.

Earlier this week, three executives with a Canadian cryptocurrency exchange, including its chief compliance officer, resigned as part of a nearly CA$2.3 million ($1.7 million) settlement agreement with the Ontario Securities Commission (OSC) tied to the exchange’s role in an illegal market manipulation scheme. The company admitted that it hid hundreds of thousands of misleading “wash trades” – simultaneous buy and sell orders – from clients, and then retaliated against an internal whistleblower who raised concerns to management about inflated trading volume. As part of the settlement agreement, the executives are banned from acting as director or officer of a firm registered with the Ontario Securities Commission. The company must also establish independent boards of directors, appoint a new CEO and CCO, create an internal whistleblower program, and update its policies and procedures in compliance with OSC rules.

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