In this issue:

• Major U.S. Payments Firm Launches Cryptocurrency Service as Adoption Grows

• Blockchain Supply Chain, Copyright and Satellite Comms Solutions Launch

• CFTC Guidance Addresses Crypto Deposits, Travel Rule White Paper Published

• Arrests Target Criminal Network Using Crypto, FinCEN Fines Tumbler Operator

Major U.S. Payments Firm Launches Cryptocurrency Service as Adoption Grows

By: Robert A. Musiala Jr.

This week a major U.S. Internet payments firm announced the launch of “a new service enabling its customers to buy, hold and sell cryptocurrency directly from their … account.” According to a press release, the company plans to make cryptocurrencies “available as a funding source” through its online payment’s platform “for purchases at its 26 million merchants worldwide” and will initially support bitcoin, ether, bitcoin cash and litecoin directly within customers’ digital wallets. The new service will reportedly become available to U.S. customers in the coming weeks. As part of the new offering, the company has become the first approved entity to receive a “conditional BitLicense” from the New York State Department of Financial Services. According to various press releases, the company will partner with a New York chartered trust company that will provide cryptocurrency trading and custodial services for customers using the new service.

In foreign markets, this week the Bahamas officially launched its central bank digital currency (CBDC), the sand dollar. The sand dollar is a digital version of the Bahamian dollar that is issued by the Central Bank of the Bahamas. In Japan, the firm that operates the country’s most popular messaging app is reportedly planning to launch a blockchain-based platform targeted at assisting central banks in launching CBDCs. And in the U.K., a publicly traded fintech firm has reportedly become “the first U.K. publicly traded company to announce a significant purchase of Bitcoin as part of its treasury investment strategy.” According to a press release, the company “has allocated up to ten percent (10%) of its cash reserves to purchase Bitcoin and adopt it as a treasury reserve asset.”

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Blockchain Supply Chain, Copyright and Satellite Comms Solutions Launch

By: Teresa Goody Guillén

Two global container carriers recently announced that they are now fully integrated onto the TradeLens blockchain-enabled shipping platform. According to the announcement, the global container carriers will help expand the ecosystem and will run validator nodes on the blockchain network.

A global retailer and a developer of enterprise-level blockchain platforms have published a case study that provides details on the creation and adoption of DL Freight, a blockchain solution for freight invoice management that tracks deliveries, verifies transactions and automates invoices in real time through the application of smart contracts. According to a press release, the solution has become “the national standard for freight invoice management” for the Canadian division of the global retailer.

This week a technology firm based in Mumbai, India, announced an initiative to leverage the R3 Corda blockchain to develop “a suite of next generation payments, working capital, and Foreign Exchange services that can be seamlessly deployed on Corda.” The solution will target midsize and small businesses.

A major Chinese blockchain business has announced the deployment of a new digital copyright services platform that combines blockchain technology with artificial intelligence to enable creators to securely authenticate and verify various forms of original content, including video as well as image-based and written material. The platform reportedly generates a unique, tamperproof digital copyright certification and notary stamp for each work that is uploaded into its database.

In a final notable development, a U.S. university’s engineering school and a nonprofit organization have secured a flight for the university’s blockchain solution on an aerospace rocket scheduled to launch on Nov. 20. The rocket is expected to carry a satellite that will include the university’s private blockchain mounted on a Raspberry Pi, which is a credit card-sized single-board computer. The pilot project seeks to reduce the cost of maintaining ground stations by allowing satellites to “talk” to each other in space.

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CFTC Guidance Addresses Crypto Deposits, Travel Rule White Paper Published

By: Robert A. Musiala Jr.

The U.S. Commodity Futures Trading Commission (CFTC) has issued an advisory to futures commission merchants (FCMs) to provide guidance on “how to hold and report certain deposited virtual currency from customers in connection with physically-delivered futures contracts or swaps” and on “designing and maintaining risk management programs concerning the acceptance of virtual currencies as customer funds.” The advisory sets out 12 requirements that FCMs must adhere to when holding virtual currency as customer funds. Among other things, the 12 requirements address approved depository institutions for virtual currencies, identification and documentation of deposits, withdrawal availability and timing, fair market value reporting, computation of daily and month-end segregation requirements, account segregation procedures, investment and margin value restrictions, procedures for return of customer funds, and required notices. The advisory notes that the CFTC “may determine to examine any FCM that accepts and holds customer virtual currency assets to determine how it is choosing to meet its obligations.”

The U.S. Travel Rule Working Group (USTRWG), whose members include 25 leading U.S. virtual asset service providers (VASPs), have published a new white paper addressing the application to VASPs of the Travel Rule, which imposes certain customer identification and data transmission requirements on cryptocurrency transactions based on the U.S. Bank Secrecy Act, regulations issued by the U.S. Financial Crimes Enforcement Network, and guidance from the Financial Action Task Force. The white paper focuses on Phase 1 of a solution that is intended to serve as a proof of concept for facilitating Travel Rule compliance among VASPs.

This week a major U.S. cryptocurrency exchange published a report providing details on requests that the exchange received from law enforcement during the period of Jan. 1 to June 30, 2020. Among other things, the report noted that 58 percent of all requests came from U.S. agencies, 16 percent came from state or local authorities, and 90 percent of all requests came from just three jurisdictions: the U.S., the U.K. and Germany.

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Arrests Target Criminal Network Using Crypto, FinCEN Fines Tumbler Operator

By: Joanna F. Wasick

Twenty suspected members of the QQAAZZ criminal network were recently arrested for attempting to launder tens of millions of euros on behalf of the world’s most notorious cybercriminals. According to press releases, the QQAAZZ money laundering network used bank accounts and sometimes converted funds to cryptocurrency using “tumbling” services to obscure the source of the funds. After taking a fee of up to 50 percent, QQAAZZ members would return the balance of the stolen funds to their cybercriminal clients. The arrests were the result of an unprecedented international law enforcement effort involving enforcement from 16 countries, including the U.S. Department of Justice, which last week announced related indictments out of its office.

Earlier this week, the Financial Crimes Enforcement Network (FinCEN) announced its assessment of a $60 million civil money penalty against Larry Dean Harmon, the founder and operator of Helix and Coin Ninja, cryptocurrency “mixers” or “tumblers” that are designed to obscure the source of cryptocurrency. According to FinCEN, Harmon operated his companies as an unregistered money services business (MSB) and violated the Bank Secrecy Act and related regulations by failing to register as an MSB, failing to implement and maintain a proper anti-money laundering (AML) program, and failing to report certain suspicious financial activity. FinCEN identified over 1.2 million unlawful transactions, including 356,000 bitcoin transactions, through Harmon’s enterprise, including transactions involving narcotics traffickers, counterfeiters and other criminals.

The trial against Alexander Vinnik, who allegedly laundered billions of dollars through his alleged operation of the now defunct cryptocurrency exchange BTC-e, is set to begin this Monday in Paris. Vinnik, who is also wanted in the United States and Russia, was arrested in 2017 while on vacation in northern Greece. After two years of litigation, Greek authorities ruled Vinnik would be extradited first to France, then to the United States and then to Russia.

This week the U.S. Securities and Exchange Commission (SEC) announced a final judgment on consent against Kik Interactive Inc., to resolve the SEC’s charges that Kik’s unregistered offering of digital “Kin” tokens in 2017 violated federal securities laws. Under the judgment, Kik must pay a $5 million penalty and must, for the next three years, provide the SEC notice before engaging in enumerated future issuances, offers, sales and transfers of digital assets.

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