In this issue:

NY DFS Approves Crypto Platform, Prepaid Crypto Card to Launch in Argentina

By Kayley B. Sullivan

According to a press release this week, the New York State Department of Financial Services (NY DFS) has authorized two subsidiaries of Zero Hash Holdings to launch “their regulated B2B2C crypto infrastructure solution” in New York. The Zero Hash platform reportedly enables a “turnkey solution” that “allows any platform to integrate digital assets natively into their own customer experience quickly and easily” using application programming interface integrations.

In other news, another press release published this week announced that Binance, the world’s largest cryptocurrency exchange by volume, is working with a major U.S. financial services firm to launch the “Binance Card” in Argentina. According to the press release, the Binance Card “will allow all new and existing Binance users in Argentina with a valid national ID to make purchases and pay bills with cryptocurrencies, including Bitcoin and BNB, at over 90 million … merchants worldwide, both in-store and online.”

For more information, please refer to the following links:

US Department of the Treasury Sanctions Major Virtual Currency Mixer

By Keith R. Murphy

Earlier this week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, a smart contract-based virtual currency mixer. According to a press release published by the U.S. Department of the Treasury, Tornado Cash “is a virtual currency mixer that operates on the Ethereum blockchain and indiscriminately facilitates anonymous transactions by obfuscating their origin, destination and counterparties, with no attempt to determine their origin.” The press release states that Tornado Cash has been used to launder more than $7 billion since 2019, including more than $450 million of cryptocurrency obtained through thefts by the Lazarus Group, a North Korean state-sponsored hacking organization. The press release also states that Tornado Cash received funds relating to recent thefts from cross-chain bridges, including the Harmony Bridge and the Nomad Bridge.

Tornado Cash, along with 38 unique cryptocurrency addresses, has been added to the Specially Designated Nationals List, a directory of sanctioned individuals and entities whose assets are blocked by the U.S. government and with whom U.S. persons are prohibited from transacting. As a result, all property and interests in property of Tornado Cash that is in the United States or in the possession or control of U.S. persons is blocked and must be reported to OFAC. According to the press release, “Those in the virtual currency industry … should take a risk-based approach to assess the risk associated with different virtual currency services, implement measures to mitigate risks, and address the challenges anonymizing features can present to compliance with AML/CFT obligations … mixers should in general be considered as high-risk by virtual currency firms, which should only process transactions if they have appropriate controls in place to prevent mixers from being used to launder illicit proceeds.”

For more information, please refer to the following links:

SEC Publishes ICO Consent Order, Crypto Exchange Discloses SEC Investigation

By Alex Karambelas

This week, the U.S. Securities and Exchange Commission (SEC) published a consent order settling charges against Bloom Protocol LLC (Bloom) related to Bloom’s 2017 initial coin offering (ICO). In the settlement, the SEC characterized Bloom’s BLT token as a security because ICO purchasers “would have had a reasonable expectation of obtaining a future profit based upon Bloom’s efforts in using the proceeds from the offering” and alleged that Bloom violated Sections 5(a) and 5(c) of the Securities Act by failing to register its token with the SEC. The settlement requires Bloom to register its token with the SEC and pay a $300,000 civil penalty. Among other things, the settlement also requires Bloom to publish a notice and a claim form “informing all persons and entities that purchased BLT … before and including January 2, 2018, of their potential claims under Section 12(a) of the Securities Act, including the right to sue ‘to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if [the purchaser] no longer owns the security.’” If Bloom fails to comply with the settlement, it faces a $30.9 million fine. According to the order, Bloom has started preparing for registration by retaining an auditor and hiring additional audit and compliance staff.

In related news, in its most recent quarterly filing, a major U.S. cryptocurrency exchange disclosed that it had received investigative subpoenas from the SEC seeking information related to “processes for listing assets, the classification of certain listed assets, its staking programs and its stablecoin and yield-generating products.” The company previously disclosed that it received similar investigative subpoenas related to the company’s stablecoin and yield-generating products in its last quarterly filing in May of this year. The recent disclosure comes weeks after the SEC filed insider trading charges against a former employee of the company.

For more information, please refer to the following links:

Report Cites Money Laundering Risks of Cryptocurrency Cross-Chain Bridges

By Lauren Bass

According to a recent post by blockchain analytics firm Elliptic, cross-chain bridges –  decentralized protocols that allow users to transfer assets between blockchains – have become a key facilitator of money laundering. Since 2020, one protocol, RenBridge, has reportedly facilitated the laundering of over $540 million in cryptoassets derived from theft, fraud, ransomware and other illicit endeavors. While much of the traffic on bridges is legitimate, according to Elliptic, the lack of regulation allows criminal activity to flourish. Without a central service provider to facilitate these cross-chain transactions, bridges are likely to continue to pose a challenge to regulators.  

For more information, please refer to the following links: