The Blockchain Monitor

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In this issue:
• <a href="#New">New Approvals From European and Thai Regulators, Canada and WEF Publish Guidance</a>
• <a href="#SEC">SEC Targets ICOs, IRS Updates Crypto FAQs, UK Tax Agency Seeks Blockchain Analytics Tool</a>
• <a href="#Chamber">Chamber of Digital Commerce and Blockchain Association Weigh In on SEC v. Telegram</a>
• <a href="#Reports">Reports Address Cryptocurrency Terrorist Financing Risks</a>
<a id="New"></a>New Approvals From European and Thai Regulators, Canada and WEF Publish Guidance

By: <a href="https://www.bakerlaw.com/VeronicaReynolds">Veronica Reynolds</a>

Swiss-based digital fund manager Amun launched 21 Shares Short Bitcoin (SBTC) this week, a first-of-its-kind digital asset-based Exchange Traded Product (ETP) that reportedly allows investors an easy method for capturing falling price movements of bitcoin through a traditional broker or bank. According to reports, the product is compliant with Swiss regulations and launched on the Swiss Stock Exchange. In another development from Europe, officials in Liechtenstein have approved AARGOS Global Real Estate Fund as an alternative investment fund. The company reportedly makes available a fully regulated, tokenized real estate portfolio, with each token representing one share in the fund.

Asian cryptocurrency trading platform Zipmex was granted a digital asset exchange license this week from Thailand’s securities regulator. The company is now classified as a financial institution in the country and must comply with AML reporting obligations. The availability of this license is somewhat new, with its introduction part of the country’s regulatory framework for digital assets that went into effect in 2018.

Canada’s securities administrator issued guidance last week to assist in the determination of whether certain digital assets are securities subject to regulation. The guidance notes that such regulations might apply to digital assets traded on exchange platforms because although the token itself may be correctly categorized as a commodity, the underlying right to the token might­ constitute a security when such a right is not settled in real time.

The World Economic Forum shared insights this week gathered from researchers, policymakers and international organizations and announced its central bank digital currency (CBDC) Policy-Maker Toolkit. The toolkit is designed to help central banks assess whether CBDC is a strategic fit for their economy and help them access methods of evaluation, design and deployment. A key goal of the toolkit is to help provide common groundwork “to support stable, efficient and inclusive global economic systems.”

For more information, please refer to the following links:
<ul>
 	<li><a href="https://www.globenewswire.com/news-release/2020/01/23/1974038/0/en/AMUN-INNOVATES-WITH-THE-ISSUANCE-OF-THE-WORLD-FIRST-INVERSE-BITCOIN-TRACKER-ETP.html">AMUN INNOVATES WITH THE ISSUANCE OF THE WORLD FIRST INVERSE BITCOIN TRACKER ETP</a></li>
 	<li><a href="https://www.coindesk.com/crypto-asset-firm-amun-launches-inverse-bitcoin-etp">Crypto Asset Firm Amun Launches Inverse Bitcoin ETP</a></li>
 	<li><a href="https://www.coindesk.com/liechtenstein-regulators-approve-ethereum-based-real-estate-fund">Liechtenstein Regulators Approve Ethereum-Based Real Estate Fund</a></li>
 	<li><a href="https://cointelegraph.com/news/thai-sec-grants-license-to-asia-pacific-crypto-exchange">Thai SEC Grants License to Asia-Pacific Crypto Exchange</a></li>
 	<li><a href="https://www.osc.gov.on.ca/documents/en/Securities-Category2/csa_20200116_21-327_trading-crypto-assets.pdf">Canada: Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets</a></li>
 	<li><a href="https://www.coindesk.com/canadian-regulator-targets-crypto-exchanges-holding-users-digital-assets">Canadian Regulatory Group Targets Crypto Exchanges Holding Users’ Digital Assets</a></li>
 	<li><a href="https://www.weforum.org/press/2020/01/central-banks-waking-up-to-digital-currency-create-new-framework-for-cbdc-deployment-with-world-economic-forum-177ca5d9ee">Central Banks ‘Waking Up’ to Digital Currency, Create New Framework for CBDC Deployment with World Economic Forum</a></li>
</ul>
<a id="SEC"></a>SEC Targets ICOs, IRS Updates Crypto FAQs, UK Tax Agency Seeks Blockchain Analytics Tool

By: <a href="https://www.bakerlaw.com/JoannaFWasick">Joanna F. Wasick</a>

Late last week, the Securities and Exchange Commission (SEC) charged Mr. Boaz Manor, Ms. Edith Pardo and two related entities, CG Blockchain Inc. and BCT Inc. SEZC, for violating federal securities laws when raising more than $30 million from hundreds of investors in a fraudulent initial coin offering (ICO). The SEC alleges that the defendants falsely claimed to have 20 hedge funds testing their technology to record transactions on a blockchain, when, in fact, the defendants only sent a prototype to a dozen funds, none of which used or paid for it. In addition, the complaint describes how Manor, a convicted criminal, hid his identity and criminal past from investors by changing his physical appearance and using an alias. The U.S. Attorney’s Office announced criminal charges against Manor and Pardo in a parallel action.

The SEC filed another ICO-related complaint this week against Opporty International Inc. and its founder and owner, Mr. Sergii Grybniak. The SEC alleges that the defendants’ ICO constituted an unlawful, unregistered securities offering, and that the defendants made false and misleading statements to investors, including that the ICO was “100% SEC compliant.”

The Internal Revenue Service (IRS) recently updated its Frequently Asked Questions page on its website to address the responsibilities and reporting obligations for charitable donations made with cryptocurrency. The guidance provides that a charitable organization that receives virtual currency should treat the donation as a noncash contribution. It also describes donor acknowledgment responsibilities for donations of more than $5,000 in cryptocurrency, leading some analysts to conclude that high-value cryptocurrency donations must be appraised.

The U.K.’s tax agency, Her Majesty’s Revenue and Customs, recently requested proposals for a blockchain analytics tool to help combat illegal cryptocurrency trading. According to the agency, the tool would “support intelligence-gathering methods to identify and cluster crypto-asset transactions into linked transactions and identify those linked to crypto-asset service providers.” The agency is willing to spend £100,000 to license the tool. Proposals are invited until Jan. 31 of this year.

For more information, please refer to the following links:
<ul>
 	<li><a href="https://www.sec.gov/news/press-release/2020-12#.XiHpzwppNpY.linkedin">SEC Charges Convicted Criminal Who Conducted Fraudulent ICO Using a Fake Identity</a></li>
 	<li><a href="https://www.coindesk.com/sec-charges-blockchain-marketplace-opporty-over-fraudulent-600000-ico">SEC Charges Blockchain Marketplace Opporty Over ‘Fraudulent’ $600,000 ICO</a></li>
 	<li><a href="https://www.justice.gov/usao-nj/pr/two-people-indicted-30-million-dollar-fraud-scheme-involving-blockchain-technology">Two People Indicted For $30 Million Dollar Fraud Scheme Involving Blockchain Technology Company</a></li>
 	<li><a href="https://news.bloombergtax.com/daily-tax-report/irs-update-reignites-concerns-about-crypto-donation-appraisals">IRS Update Reignites Concerns About Crypto Donation Appraisals</a></li>
 	<li><a href="https://www.theblockcrypto.com/post/53473/uks-tax-authority-wants-to-deploy-a-blockchain-analytics-tool-to-catch-crypto-cybercriminals">UK’s tax authority wants to deploy a blockchain analytics tool to catch crypto cybercriminals</a></li>
</ul>
<a id="Chamber"></a>Chamber of Digital Commerce and Blockchain Association Weigh In on SEC v. Telegram

By: <a href="https://www.bakerlaw.com/TeresaGoodyGuillen">Teresa M. Goody</a>

The Chamber of Digital Commerce (Chamber) and The Blockchain Association (Association), two not-for-profit organizations that promote blockchain-based technologies, recently filed amici curiae briefs in SEC v. Telegram Group Inc., 19-9439 (SDNY). The two organizations took starkly different approaches; however, they both request that the court distinguish between the transaction that is the investment contract and the subject of the investment contract. Both amici aver that in the blockchain context, the digital assets are improperly conflated with the investment contract; that is, when digital assets are simply the subject of an investment contract, such as the orange groves in SEC v. W. J. Howey Co., 328 U.S. 293 (1946), those are not the investment contract.

The Chamber’s brief does not take a position on the application of the securities laws to Telegram but instead focuses on the overall regulatory scheme of digital assets and urges the court to undertake a two-part analysis (“whether there is an investment contract, offered in a securities transaction” and “whether the subject of an investment contract is a commodity that can be sold in an ordinary commercial transaction”). In stark contrast, the Association’s brief posits that Telegram did not violate the securities laws. The Association’s brief warns the court of far-reaching repercussions of a broad decision in light of what it characterizes as the SEC’s unclear regulatory guidance, regulation by enforcement, closed-door consultations and no-action letters addressing “tokens [that] were so clearly not securities that it seemed bizarre that the SEC would even undertake the analysis.” While the two briefs are very different, they appear to promote similar substantive securities law arguments as to the proper investment contract analysis application to digital assets.

For more information, please refer to the following links:
<ul>
 	<li><a href="https://www.law360.com/fintech/articles/1235909/blockchain-groups-ask-to-weigh-in-on-1-7b-telegram-case?nl_pk=e26bb39b-e3c7-4526-9cfc-32bc738fb413&amp;utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=fintech">Blockchain Groups Ask To Weigh In On $1.7B Telegram Case</a></li>
 	<li><a href="https://cointelegraph.com/news/digital-chamber-of-commerce-weighs-in-on-telegram-legal-battle-with-sec">Digital Chamber of Commerce Weighs In on Telegram Legal Battle With SEC</a></li>
 	<li><a href="https://www.courtlistener.com/recap/gov.uscourts.nysd.524448/gov.uscourts.nysd.524448.86.1.pdf">BRIEF OF AMICUS CURIAE THE CHAMBER OF DIGITAL COMMERCE</a></li>
 	<li><a href="https://medium.com/@BlockchainAssoc/blockchain-association-stands-up-for-crypto-industry-in-amicus-brief-for-telegram-case-2a0d92a3803b">Blockchain Association stands up for crypto industry in amicus brief for Telegram case</a></li>
</ul>
<a id="Reports"></a>Reports Address Cryptocurrency Terrorist Financing Risks

By: <a href="https://www.bakerlaw.com/SimoneOOtenaike">Simone O. Otenaike</a>

Blockchain analytics firm Chainalysis recently announced plans to release a report later this month that details the use of cryptocurrency as a terrorism financing tool. According to prior reports, the media wing of a jihadist group, designated as a fForeign Terrorist Organization by the U.S. State Department, launched a cryptocurrency crowdfunding campaign in 2016. Over the two years that the campaign ran, the organization reportedly received tens of thousands’ worth of cryptocurrency from roughly 50 different donations. According to Chainalysis, the median donation was $164.

In related news, the Israeli International Institute for Counter-Terrorism (ICT) recently identified what may be a bitcoin front for an organization with links to Hamas and Iran. The organization reportedly uses a service called “Cash4ps” to send and receive money to its fundraising wallet for operations in and out of the Gaza Strip. According to ICT’s investigations, the wallet’s transactions over the past four years total roughly 3,370 bitcoin (approximately $29 million at current prices). A Chainalysis post analyzed the report findings and noted that not all bitcoin received by Cash4ps during its lifetime represented donations to the organization, since the majority of transactions were internal transfers.

For more information, please refer to the following links:
<ul>
 	<li><a href="https://blog.chainalysis.com/reports/terrorism-financing-cryptocurrency-2019">Terrorism Financing in Early Stages with Cryptocurrency But Advancing Quickly</a></li>
 	<li><a href="https://www.jpost.com/Israel-News/ICT-identifies-Hamas-bitcoin-front-with-Iran-links-exclusive-614644">IDC identifies Hamas bitcoin front with Iran links – report</a></li>
 	<li><a href="https://www.coindesk.com/palestinian-militant-group-has-received-3370-bitcoins-in-donations-since-2015-report">Palestinian Militant Group Has Received 3,370 Bitcoins in Donations Since 2015: Report</a></li>
 	<li><a href="https://mobile.twitter.com/chainalysis/status/1219746308115832832">Chainalysis: Misinformation about terrorism fundraising campaign run by (PRC) in Gaza</a></li>
 	<li><a href="https://www.ict.org.il/Article/2488/Identifying_Money_Transfers_and_Terror_Finance_Infrastructure#gsc.tab=0">Identifying Money Transfers and Terror Finance Infrastructure</a></li>
</ul>

core/freeform

New York

Associate

Veronica Reynolds

Partner

Joanna F. Wasick

Foreign Regulators Issue Approvals and Guidance, SEC Enforcement Continues, Blockchain Trade Groups File Amicus Briefs, Reports Detail Terrorist Financing Risks