Digital Asset Platforms, Blockchain Supply Chain Initiatives Grow; Enforcement Actions Target Crypto Yield Products and Fraud; DeFi Hacked for $600M

In this issue:

Digital Asset Platforms Expand Across Payments, Art and Sports Industries
Blockchain Supply Chain Initiatives Announced Across Industries
Crypto Exchange Faces Multistate Enforcement Action over Yield Products
DOJ and Manhattan DA Bring Enforcement Actions for NFT and Crypto Fraud
• DeFi Network Hacked for over $600 Million in Cryptocurrencies

Digital Asset Platforms Expand Across Payments, Art and Sports Industries

By Lauren Bass

Last week a fintech company reportedly teamed with a local digital asset exchange in the Philippines to develop a blockchain-based solution for cross-border remittances. According to reports, the partnership aims to increase the speed and lower the costs for Filipino marketplaces and consumers to send and receive money internationally.

In related news, a multinational financial services corporation has reportedly launched a pilot program to help digital creators enter and thrive in today’s growing NFT (non-fungible token) marketplace. According to a press release, the goal of the one-year immersion program – geared toward entrepreneurs working in art, music, fashion and film – is to help create a “global cohort of digital creators and empower them through product strategy mentorship.”

After making a splash during the commercial breaks for a major American football game, a global cryptocurrency exchange is reportedly setting its sights on European fútbol. According to a press release, the company will serve as the “exclusive cryptocurrency trading platform sponsor of Qatar 2022” with benefits that include “significant branding exposure both within and outside the tournament’s stadiums.” This sponsorship is the latest of many high-profile partnerships for the platform, including MMA, basketball, ice hockey and other entertainment properties.

And speaking of fútbol, a multinational auction house has reportedly partnered with one of Europe’s premier clubs to debut a collection of NFTs on the auction house’s metaverse platform. According to reports, the collection will feature unique digital artwork inspired by the team’s players, and ownership of an NFT will allow fans entry into exclusive community forums, virtual hangouts and other fan-centric activities. A portion of the proceeds from all NFT sales will be donated to the club’s charitable foundation.

For more information, please refer to the following links:

Blockchain Supply Chain Initiatives Announced Across Industries

By Robert A. Musiala Jr.

According to a recent press release, the “London Bullion Market Association (LBMA) and the World Gold Council (WGC) are collaborating to develop and implement an international system of gold bar integrity, chain of custody and provenance” and will launch a pilot phase that will use blockchain technology to “register and track [gold] bars, capturing the provenance and full transaction history.” In a related announcement, a major global consumer products firm and a major global software firm will pilot a blockchain-based platform to allow the consumer products firm to “trace its global palm oil resources, making sure that the origins of this raw material are transparent and sustainably verified.”

In other supply chain developments, SIMBA Chain, a blockchain development firm, announced plans to pilot a blockchain-based platform to “build a Local Health Alert System to conduct contact tracing and data analysis on-chain, translating real-time public health indicators into future demand signals to develop predictive capabilities for supply chain needs.” According to a press release, the initiative is spearheaded by a “national digital manufacturing and cybersecurity institute and supported by a $6.25 million award from the National Institute of Standards and Technology (NIST), part of the U.S. Department of Commerce.”

In the maritime supply chain, the two major providers of blockchain tracing systems for cargo containers each announced new initiatives. According to reports, the TradeLens platform has been adopted by the Costa Rican customs authority “to review containerized shipment events and transportation documents, including bills of lading.” And the Global Business Shipping Network announced its expansion into Europe with Cargo Release, its blockchain-based tracing system, beginning a pilot with the Port of Rotterdam in the Netherlands.

A recent report predicts that the blockchain supply chain market will “grow from USD 253 million in 2020 to USD 3,272 million by 2026, at a Compound Annual Growth Rate (CAGR) of 53.2% during the forecast period.” Among other things, the report notes the “growing need for supply chain transparency and rising demand for enhanced security of supply chain transactions” as factors driving market growth.

For more information, please refer to the following links:

Crypto Exchange Faces Multistate Enforcement Action over Yield Products

By Alex Karambelas

Voyager Digital (Voyager) is facing scrutiny by securities regulators in at least seven states, according to reports this week. Voyager reportedly received orders to show cause and cease and desist orders from regulators in New Jersey, Alabama, Oklahoma, Texas, Kentucky, Vermont and Washington. At the center of the regulatory action is Voyager’s yield-bearing cryptocurrency accounts, known as “Earn Accounts,” offered through its “Earn Program.” According to reports, the state regulators believe that these accounts constitute unregistered securities. The coordinated regulatory action comes just over a month after BlockFi Lending, a cryptocurrency lending platform, reached a $100 million settlement with state and federal regulators for failing to register a similar product as a security.

The New Jersey Bureau of Securities (BOS) was among the state regulators to issue a cease and desist order against Voyager this week. In its order, the BOS alleges that Voyager has accumulated approximately $5 billion in cryptocurrency and digital assets through its Earn Program. The BOS goes on to allege that while payments to Earn Program investors are characterized as “rewards,” Voyager merely uses the term “rewards” as a stand-in for “interest.” The order further alleges that Voyager’s Earn Accounts are not registered with any securities regulatory authority, are not exempt from registration and are not protected by federal programs designed to protect investors. The order, which becomes effective April 29, 2022, will not preclude Voyager from paying interest on existing Earn Accounts or refunding principal to existing Earn Account investors.

In a statement released this week, Voyager stated that it was engaged in ongoing communications with state regulators to understand the state orders and clarify statements it believes are inaccurate. “Voyager is firmly convinced that its Earn Program and the Voyager Earn Accounts are not securities and intends to demonstrate its position and defend it as necessary and appropriate,” the company said.

For more information, please refer to the following links:

DOJ and Manhattan DA Bring Enforcement Actions for NFT and Crypto Fraud

By Jordan R. Silversmith

This week the Department of Justice (DOJ) announced charges against two defendants in an NFT fraud and money laundering scheme. According to the criminal complaint, the two individuals face charges of conspiracy to commit wire fraud and conspiracy to commit money laundering in connection with a million-dollar scheme to defraud purchasers of NFTs advertised as “Frosties.” According to a DOJ press release, “[r]ather than providing the benefits advertised to Frosties NFT purchasers[, [the defendants] transferred the cryptocurrency proceeds of the scheme to various cryptocurrency wallets under their control.” In a quote from the press release, a U.S. attorney said the defendants “promised investors the benefits of the Frosties NFTs, but when it sold out, they pulled the rug out from under the victims, almost immediately shutting down the website and transferring the money.” The two defendants face maximum sentences of 20 years in prison for each count.

In another recent press release, the DOJ announced that a Nevada man admitted and pleaded guilty to laundering funds for BitClub Network, a $722 million fraudulent cryptocurrency scheme. The man pleaded to one count of conspiracy to commit money laundering and one count of aiding in the preparation of a false tax return. The man further admitted to controlling bank accounts associated with BitClub Network and to directing transfers to and from the accounts exceeding $50 million.

In a third enforcement action, the Manhattan district attorney announced the indictment of an individual for “operating a global money laundering business that enabled at least 7 clients, who engaged in a wide-range of criminal activity, to use Bitcoin anonymously to hide and obscure their illegal proceeds.” According to a press release, the individual “converted more than $2.3 million into Bitcoin and more than $380,000 worth of Bitcoin into U.S. dollars, using a rotating set of accomplices … to open bank and cryptocurrency exchange accounts to launder criminal proceeds.” Several of the man’s clients have also been charged for criminal activity uncovered by the district attorney’s investigation.

For more information, please refer to the following links:

DeFi Network Hacked for over $600 Million in Cryptocurrencies

By Joanna F. Wasick

As announced by developers earlier this week, hackers absconded with 173,600 ETH (currently worth around $585 million) and $25.5 million worth of USDC following a major hack of Ronin, an Ethereum sidechain built to support the play-to-earn game Axie Infinity. Specifically, five of nine validators on the Ronin network were reportedly attacked, allowing the hackers to drain funds from the Ronin bridge, which serves to move funds between blockchains. The hack reportedly occurred on Wednesday, March 23, but wasn’t discovered until the 29th. Per the announcement, the majority of the funds are being held in a specific Ethereum address, which is now flagged. Ronin says it is now working with the government to identify and prosecute these criminals, in what is being called the biggest hack ever in the DeFi space.

For more information, please refer to the following links:

Axie Infinity’s Ronin Network Suffers $625M Exploit

Firms Expand Crypto Services; Networks Implement DAOs and Integrations; Congressmen Address SEC on Crypto; IRS and OECD Address Crypto Tax

In this issue:

Investment Bank and Cryptocurrency Exchanges Expand Crypto Services

By Robert A. Musiala Jr.

This week a U.S. investment bank announced the public launch of its digital asset division. According to a press release, “the new division offers full-service trade execution and custody solutions on a platform that provides institutional clients with secure and compliant access to the digital asset ecosystem.”

In another recent development, Coincheck, one of the largest cryptocurrency exchanges in Japan, announced “a definitive agreement for a business combination that would result in the combined entity being a publicly listed holding company, domiciled in the Netherlands, with Coincheck as its wholly-owned subsidiary.” According to a press release, “[u]pon closing of the transaction, the resulting holding company will be named Coincheck Group, N.V. and expects to be listed on the Nasdaq Global Select Market under the ticker symbol CNCK.”

According to recent reports, cryptocurrency exchange Blockchain.com has completed the acquisition of an “over-the-counter” trading desk for cryptocurrencies with operations in the Asia-Pacific region. And in a separate development, a major U.S. cryptocurrency exchange has reportedly received an electronic money license from the Central Bank of Ireland. According to reports, the license will allow the exchange “to issue electronic money, provide electronic payment services and handle electronic payments for third parties” and “enable the company to passport those services to European Economic Area countries.”

For more information, please refer to the following links:

From Australia to Africa, Cryptocurrency Sees Continued International Adoption

By Alex Karambelas

The Australia and New Zealand Banking Group (ANZ) recently announced that it has launched its own stablecoin (A$DC), a bank-minted digital asset backed 1:1 by the Australian dollar. ANZ is reportedly the first Australian bank to mint a stablecoin tied to the Australian dollar. According to reports, ANZ will partner with a private wealth management firm to custody the 30 million A$DC tokens minted by the bank.

The Bank for International Settlements (BIS) Innovation Hub announced this week that it has developed prototypes for a shared platform for the settlement of central bank digital currencies (CBDCs), in partnership with the central banks of Australia, Malaysia, Singapore and South Africa. The joint effort, dubbed Project Dunbar, aims to create a common platform for international settlements using multiple CBDCs. “Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms,” said the head of the BIS Innovation Hub in a statement released with the announcement.

In a final notable item, a recent report indicates that cryptocurrency adoption in Africa increased by 2,500 percent in 2021 alone. The report, released by a major Singapore-based cryptocurrency exchange, notes that more than 88.5 percent of African cryptocurrency transactions were cross-border transfers. In an interview, the CEO of the exchange predicted that adoption of digital assets in Africa will continue to grow exponentially. “African countries have the highest crypto adoption rate in the world, outperforming even the biggest regions such as the United States, Europe and Asia,” the CEO said. 

For more information, please refer to the following links:

ApeCoin Drops; Juno Holders Confiscate Funds; Polygon Integrates Simba Chain

By Veronica Reynolds

ApeCoin launched last week after much anticipation, with Yuga Labs, parent company of nonfungible token (NFT) project Bored Ape Yacht Club (BAYC), reportedly planning to “adopt ApeCoin as the primary token for all new products and services.” According to the ApeCoin website, the new token will “serve as a decentralized protocol layer for community-led initiatives that drive culture forward into the metaverse” and will be owned and operated by a decentralized autonomous organization (DAO).

Cosmos-based blockchain Juno network also turned heads last week with news related to on-chain governance, when the JUNO token community passed a governance proposal to confiscate the funds of a very large holder of the JUNO token (also known as a “whale”) that had been accused of manipulating an airdrop planned around the launch of Juno network. According to reports, “[t]he plan is extremely notable because it appears to mark the first major instance of on-chain governance being used to change a user’s token balance.” The approved proposal will result in a backward-incompatible change to Juno’s code, also known as a “hard fork.”

In another recent blockchain protocol development, Polygon (MATIC), a “layer two” cryptocurrency and scaling solution connected to Ethereum, has integrated Simba Chain, an API development platform focused on Web3 infrastructure development. Simba Chain reportedly will offer companies tools to develop infrastructure to support their Web3 products and services as well as to “build and run custom, white-label NFT Marketplaces for their customers.”

For more information, please refer to the following links:

Congressmen Question SEC on Crypto; OECD and IRS Address Crypto Taxation

By Lauren Bass

Last week, a bipartisan group of congressmen sent a letter to the chair of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, expressing concern over the SEC’s potential use of “investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants.” Suggesting that such requests might “be at odds with the Paperwork Reduction Act,” the eight authors asked the SEC to provide details on recent information-gathering practices. Rep. Tom Emmer (R-Minn.), chair of the Congressional Blockchain Caucus, released the following statement in connection with the letter: “The SEC must ensure that its information-seeking requests to private crypto and blockchain firms are not overburdensome, unnecessary, and do not stifle innovation.”

Earlier this week, the Organisation for Economic Co-operation and Development (OECD), an international intergovernmental forum, proposed a new global tax transparency framework to help facilitate and standardize the reporting and exchange of information related to cryptocurrency assets. According to a press release, the Crypto-Asset Reporting Framework (CARF) will help provide “for the collection and exchange of tax-relevant information between tax administrations” for various types of crypto-asset transactions, including decentralized finance. Among other things, CARF proposes amendments to the Common Reporting Standard expanding its scope to cover “electronic money products” and Central Bank Digital Currencies (CBDC) and to streamline reporting with CARF to limit unnecessary duplication.

In related news, the IRS last week released updated guidance to U.S. taxpayers on how to properly report cryptocurrency holdings and transactions on their 2021 Form 1040s. According to a press release, all taxpayers filing Form 1040 must answer yes or no to the following question: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?” The guidance outlines specific conditions for when one should answer affirmatively or negatively.

For more information, please refer to the following links:

Crypto Payment Offerings Launch; Exchanges Achieve Foreign Approvals; Ukraine Legalizes Crypto; Regulators Issue Warnings; $28M in Bitcoin Seized

In this issue:

Payments Firm Unveils Crypto Services, Exchanges Achieve Foreign Approvals

By Veronica Reyno­­lds

A large U.S.-based financial services company launched its crypto services arm last week, providing consumers with a platform to buy and sell cryptocurrencies and non-fungible tokens (NFTs). According to reports, the company’s new crypto-based offerings provide fraud prevention, know-your-customer and Web3 services and are currently available in the United States, the United Kingdom and the European Union, with its NFT offerings available in Japan. According to reports, the company commemorated the unveiling of its new crypto-focused services with the launch of its NFT collection, with proceeds going to charity. 

In another recent development, a U.S.-based real estate investment trust (REIT) investing in supply chain real estate will now accept cryptocurrency payments from investors in exchange for the investment, making it the first REIT to do so. The REIT reportedly accepts multiple cryptocurrencies, including bitcoin and ether.

Several major cryptocurrency firms achieved approvals this week under foreign regulatory regimes. A large blockchain infrastructure platform recently secured “in-principle approval” from the Monetary Authority of Singapore to offer digital asset products to Singapore customers. According to reports, the platform is one of the first to gain this approval, granted under the country’s Payment Services Act of 2019. And in Dubai, only a week after the country announced the creation of the Virtual Asset Regulatory Authority, two of the world’s largest cryptocurrency exchanges reportedly became the first to receive licenses to operate in Dubai as digital asset service providers.

For more information, please refer to the following links:

Blockchain Network Developments: Ethereum 2.0, Wallets, DAOs and Mining

By Joanna F. Wasick

More than 10 million ether, the native token of the Ethereum Network, is reportedly now locked on the Ethereum staking contract in preparation for the network’s planned upgrade from a proof-of-work consensus mechanism to a proof-of-stake consensus. This change will mean that network transactions will be validated by nodes based on the ether they have staked on the network instead of by miners that solve algorithmic puzzles. Supporters of the change assert that the upgrade will reduce Ethereum’s transaction costs, or “gas fees,” and decrease the amount of power (and associated environmental costs) needed to support the network. 

zkSNACKs, the company behind Wasabi Wallet, an open-source, noncustodial bitcoin wallet, announced its own technical update late last week. Certain transactions will now be barred from using CoinJoin – a privacy service offered by Wasabi to conceal a token’s transactional history. The move follows widespread sanctions issued by governments around the world in response to the Ukraine conflict. 

According to reports, in a proposed network upgrade, “[t]he community behind decentralized stablecoin platform MakerDAO is mulling over a major tokenomics shift that could replace its governance token, Maker (MKR).” The proposed new governance token would be a non-transferable token “staked in governance” that would receive certain MKR rewards. 

In the mining sector, on Tuesday the government of Kazakhstan announced it was cracking down on illegal crypto miners; over 100 mining companies have ceased operations. Kazakhstan has reportedly been facing serious electricity shortages since fall 2021, when numerous miners migrated to the country from China, where the practice was banned. In other mining news, Bitmain, the world’s biggest manufacturer of crypto mining rigs, recently announced a new energy-efficient mining rig that uses liquid coolant to manage heat released from the rig.

For more information, please refer to the following links:

Crypto Legalized in Ukraine; New Crypto Sanctions Screening Tools Launch

By Kayley B. Sullivan

This week, Ukranian President Volodymyr Zelensky signed into law a bill on virtual assets that, among other things, effectively legalizes and determines the legal status and classification of cryptocurrencies. According to reports, under the new law, virtual assets will be regulated by Ukraine’s National Commission on Securities and the Stock Market. The new law comes in response to the influx of digital asset donations to support the country’s defense against the Russian invasion. With the backing of a major crypto exchange platform, the Ukranian government recently launched a crypto donations website, Aid for Ukraine, which will route digital asset donations to the Bank of Ukraine.

To assist decentralized platforms and their customers in compliance with the global sanctions imposed on Russia, a blockchain analytics platform has accelerated the launch of two compliance screening tools free of charge for companies. One, an on-chain oracle, reportedly became available last week; the second, an application programming interface, is expected to launch next month. According to recent reports, in response to the recent wave of global sanctions, wealthy Russians may be transferring value in the form of cryptocurrencies to exchange platforms based in the United Arab Emirates (UAE) in order to move cryptocurrency funds into the UAE and convert the crypto into other assets, such as property.

For more information, please refer to the following links:

Regulators Issue Warnings on Crypto Retirement Plans, ATMs and Sanctions

By Alex Karambelas

The U.S. Department of Labor (DOL) issued a notice last week cautioning fiduciaries against adding cryptocurrency and other digital assets as investment options for retirement plans. The DOL warned that digital assets “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss,” based on a range of concerns including investment volatility, regulatory compliance and valuation issues. In the same notice, the DOL announced that the Employee Benefits Security Administration will conduct an investigative program aimed at retirement plans offering cryptocurrency investment options.

Regulators in the United Kingdom also issued warnings related to cryptocurrencies late last week. The Financial Conduct Authority (FCA) warned that operators of unregistered cryptocurrency automated teller machines (ATMs) will face enforcement actions if they do not shut down their machines in the United Kingdom. According to the FCA’s announcement, 110 unregistered cryptocurrency ATMs have ceased operation in the United Kingdom since January 2020. Also last week, the Bank of England and two financial regulatory agencies issued a joint statement, calling on cryptocurrency firms to “play their part” in complying with global sanctions against Russia and Belarus. In the joint statement, regulators urged cryptocurrency firms to “take steps to ensure they are compliant with their legal obligations in relation to sanctions.” 

For more information, please refer to the following links:

DOJ Extradites Individual Charged with Ransomware; $28M in Bitcoin Seized

By Jordan R. Silversmith

Last week, the DOJ announced the extradition of a Canadian government employee to face charges relating to dozens of ransomware attacks. According to a DOJ press release, the man has been charged in the Middle District of Florida with conspiracy to commit computer fraud and wire fraud and other charges related to accessing protected computers. The charges arise from the man’s alleged participation in the NetWalker ransomware scheme, which targeted dozens of institutional and individual victims around the world. The alleged perpetrator was extradited to the United States pursuant to the extradition treaty between the United States and Canada. According to the DOJ press release, Canadian law enforcement officers discovered and seized 719 bitcoin, valued at over $28 million, during a search of the man’s home.

For more information, please refer to the following links:

Ripple Case Presses Forward

The two individual defendants in the Ripple case, Bradley Garlinghouse and Christian A. Larsen, suffered a setback this week when the court denied their motions to dismiss. Judge Analisa Torres, District Court judge for the Southern District of New York, ruled that the United States Securities and Exchange Commission (SEC) had adequately pleaded that the two senior executives of the crypto platform had aided and abetted Ripple’s alleged violations of Section 5 of the Securities Act of 1933 (Securities Act). On the same day, the court also denied the SEC’s motion to strike Ripple’s affirmative defense that the SEC violated Ripple’s due process rights for failure to provide fair notice that its conduct was illegal.

Click here to read more about what has become the most heavily litigated crypto case to date.

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Executive Order Launches Comprehensive US Policy and Action Plan for Digital Assets

On March 9, 2022, President Joe Biden signed the Executive Order on Ensuring Responsible Development of Digital Assets (EO) and the White House released a corresponding fact sheet summarizing related key policy objectives.

As discussed in more detail here, this is a landmark moment for the U.S. cryptocurrency market. 

Executive Order Addresses Digital Assets; Banks and Restaurants Launch Crypto Initiatives; FinCEN Issues Alert; SEC, CFTC and DOJ Bring Actions

In this issue:

President Biden Issues Executive Order Addressing Digital Assets

By Robert A. Musiala Jr.

This week, President Joe Biden signed “Executive Order on Ensuring Responsible Development of Digital Assets” (EO). According to a fact sheet published with the EO, the EO calls for measures to accomplish the following objectives:

  • Protect U.S. consumers, investors and businesses.
  • Protect U.S. and global financial stability, and mitigate systemic risk.
  • Mitigate the illicit financial and national security risks posed by the illicit use of digital assets.
  • Promote U.S. leadership in technology and economic competitiveness to reinforce U.S. leadership in the global financial system.
  • Promote equitable access to safe and affordable financial services.
  • Support technological advances and ensure responsible development and use of digital assets.
  • Explore a U.S. central bank digital currency (CBDC).

Among other things, the EO orders various U.S. agencies and interagency groups to submit within 90, 180 or 210 days a number of reports addressing digital assets. The reports broadly address CBDCs, economic opportunities and risks of digital assets, and approaches to illicit activity involving digital assets. The EO orders specific reports on the following topics:

  • Implications of a U.S. CBDC.
  • Whether legislative changes would be necessary to issue a U.S. CBDC.
  • The technical infrastructure necessary to support a U.S. CBDC.
  • Implications of digital assets for U.S. consumers, investors and businesses and for equitable economic growth.
  • Financial stability risks and regulatory gaps posed by various types of digital assets and recommendations to address such risks.
  • A framework for interagency international engagement with foreign counterparts to enhance adoption of global principles and standards for how digital assets are used and transacted.
  • A framework for enhancing U.S. economic competitiveness in, and leveraging of, digital asset technologies.
  • The environmental impact of distributed ledger technology, including potential uses of blockchain for mitigating technologies.
  • The role of law enforcement agencies in detecting, investigating and prosecuting criminal activity related to digital assets.
  • Development of a coordinated action plan for mitigating illicit finance and national security risks related to digital assets, including measures to increase AML/CFT obligations.
  • Strengthening international law enforcement cooperation for detecting, investigating and prosecuting criminal activity related to digital assets.

The EO also provides definitions of the following terms: blockchain, central bank digital currency, cryptocurrencies, digital assets and stablecoins.

In a joint statement, the U.S. director of the National Economic Council and the U.S. national security advisor said the EO “identifies the Administration’s policy priorities, both for cryptocurrencies and any future U.S. central bank digital currency, to help guide the evolution of the digital asset ecosystem in a way that is consistent with our values.” Separately, in a Washington Post article published three days prior, the undersecretary for domestic finance at the Treasury Department addressed the risks of stablecoins. According to reports, the day before the EO was published, the U.S. Treasury Department launched “an initiative to raise awareness about the risks of investing in cryptocurrencies.”

For more information, please refer to the following links:

Banks Join USDF ‘Stablecoin’ Consortium, Pursue Crypto Custody Offerings

By Alex Karambelas

Earlier this week, the USDF Consortium announced that three new banks have joined its stablecoin network only a month after the launch of the consortium. According to the announcement, the USDF Consortium is a “membership-based association of FDIC-insured banks” that is seeking “to build a network of banks and further the adoption and interoperability of a bank-minted tokenized deposit (USDF™), which will facilitate the compliant transfer of value on the blockchain.” With the addition of the three new banks, the consortium members now represent more than $200 billion in total assets, according to the announcement.

In another recent development, a global financial services firm announced a licensing agreement with a digital asset custody provider. According to a press release, the agreement will allow the financial services firm “to develop and, subject to receipt of regulatory and other approvals, launch an institutional grade digital custody offering where clients can store and settle their digital assets within a secure environment.” In a statement, a representative of the company said, “As institutional investors’ interest in digital assets continues to grow, we are building the financial infrastructure needed to support our clients’ allocations to this new asset class.”

In related news, this week a major cryptocurrency exchange announced that it will expand its global operations with the launch of a European affiliate. According to reports, the company received approval from Cypriot regulators and will begin offering products to customers in Europe. Separately, Binance, the world’s largest cryptocurrency exchange by volume, announced the launch of a new fiat-to-cryptocurrency payments provider, Bifinity. The new payment platform reportedly supports more than 50 cryptocurrencies and all major payment methods. In a statement, Bifinity’s president, Helen Hai, said, “With the launch of Bifinity, we aim to accelerate mass crypto adoption.”

For more information, please refer to the following links:

U.S. Restaurants Adopt Crypto; Swiss City Calls Crypto ‘De Facto’ Legal Tender

By Veronica Reynolds

According to reports, a popular U.S.-based burger chain recently launched a marketing campaign offering customers bitcoin as a reward for restaurant purchases made via a third-party provider’s digital payments app and debit card. The campaign runs through March and provides customers 15 percent in the form of bitcoin back on purchases. In related news, another U.S.-based restaurant chain announced in a press release that it will give away 19,840 non-fungible tokens (NFTs), in part to commemorate its 1984 founding date. The NFTs, which are hosted on the Tezos blockchain, feature nine different pizza delivery hot bag designs and will be made available throughout early March.

In Switzerland, the city of Lugano reportedly has partnered with international stablecoin issuer Tether to relegate bitcoin, tether and the city’s own LVGA Points token as the city’s “de facto legal tender.” While many other Swiss municipalities already accept tax payments in the form of cryptocurrency, Lugano is the first Swiss locality aiming for all businesses to transact in cryptocurrency. And in Sweden, one of the world’s largest Bitcoin Network mining companies announced the launch of a new bitcoin mining data center. The project anticipates having 100 megawatts of power capacity by 2024, to be derived entirely from clean energy sources.

For more information, please refer to the following links:

Cryptocurrency Sanctions Compliance Activity Spikes Following Russian Actions

By Keith R. Murphy

This week the U.S. Financial Crimes Enforcement Network (FinCEN) issued an alert advising increased vigilance by all financial institutions regarding efforts to evade sanctions and other U.S. restrictions that have been levied against Russia in the wake of that country’s actions in Ukraine. Among other things, the alert offers examples of “red flags” indicating potential evasion efforts. According to the press release, “While large-scale sanctions evasion using convertible virtual currency (CVC) by a government such as the Russian Federation is not necessarily practicable, CVC exchangers and administrators and other financial institutions may observe attempted or completed transactions tied to CVC wallets or other CVC activity associated with sanctioned Russian, Belarusian, and other affiliated persons. In addition, FinCEN reminds financial institutions of the dangers posed by Russian-related ransomware campaigns.”

According to reports, several cryptocurrency industry firms have responded by taking actions to prevent sanctions evasion. In one example, a major U.S. cryptocurrency exchange has reportedly blocked 25,000 cryptocurrency wallets believed to be linked to Russian entities and individuals allegedly involved in illegal activities, and it has shared the wallet addresses with the U.S. government in aid of sanctions enforcement. In another example, a popular Ethereum wallet provider and a related infrastructure firm made their wallet services unavailable in certain unidentified jurisdictions to deter sanctions evasion. The two entities released a joint blog post noting that the move was necessitated due to “legal compliance” and in response to recent sanctions directives from the United States and other jurisdictions.  

In a final example, a well-known non-fungible token (NFT) marketplace has reportedly deactivated accounts with Internet protocol addresses based in Iran. A representative said the marketplace “blocks users and territories on the U.S. sanctions list from using our services, including buying, selling or transferring NFT’s” and that if individuals are found to be in violation of the sanctions policy, swift action is taken to ban the offending accounts. 

For more information, please refer to the following links:

SEC, CFTC and DOJ Bring Charges Alleging Cryptocurrency Fraud Schemes

By Joanna F. Wasick and Lauren Bass

On Tuesday, the U.S. Securities and Exchange Commission (SEC) charged brother and sister John and JonAtina Barksdale with defrauding thousands of investors of more than $124 million through two unregistered fraudulent securities offerings of a digital token called “Ormeus Coin.” The siblings, described by the SEC as “modern-day snake-oil salesmen,” allegedly began selling the token on crypto trading platforms in 2017, and later sold it through subscription packages in a multilevel marketing business and promoted the sale on social media and in road shows held around the world. Among other things, the complaint alleges the defendants falsely claimed that Ormeus Coin was supported by one of the largest crypto mining operations in the world and arranged for a public website to display a wallet of an unrelated third party showing more than $190 million in assets, even though the Ormeus wallets were worth less than $500,000. The complaint also details how the Barksdales manipulated Ormeus Coin’s price and misused millions of dollars of investor funds for personal expenses.

Also on Tuesday, the Commodity Futures Trading Commission (CFTC) filed its own action against four defendants, charging them with operating a massive Ponzi scheme that defrauded investors of more than $44 million worth of bitcoin. According to the CFTC, the defendants operated a number of websites fraudulently soliciting investors, falsely promising them that professionals would trade their bitcoin and profits would be paid daily. Instead, the complaint states, the customers’ bitcoin were either misappropriated or otherwise used to make supposed profit payments to other earlier customers. A press release from the U.S. Department of Justice (DOJ) provided details on a parallel criminal action against three of the individuals. The DOJ charged the individuals with conspiracy to commit wire fraud, money laundering, conspiracy to obstruct justice, obstructing justice and tampering with evidence in connection with the fraud scheme.

A separate DOJ press release announced that the final of three co-founders of a major cryptocurrency derivatives exchange has pled guilty to violating the Bank Secrecy Act for the willful failure to establish, implement and maintain an anti-money laundering (AML) program. According to the press release, failure to implement and adhere to a proper AML program allowed the facilitation of money laundering on the exchange platform. The violations carry a maximum penalty of five years in prison.

For more information, please refer to the following links:

Financial Firms Continue Expanding into Cryptocurrency Markets; Crypto Donations Reach Ukraine; DOJ Crypto Enforcement Continues; SEC Probes NFTs

In this issue:

  • Traditional Financial Firms Expand Reach into Cryptocurrency Sphere
  • Cryptocurrency Donations Pour In to Fund Ukrainian Government and Charities
  • DOJ Secures Guilty Pleas and Charges Alleged Ponzi Scheme; SEC Launches NFT Probe

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Financial Firms Develop Crypto Offerings; DAO Hacker Reportedly Identified; DOJ Names New Crypto Director; NFT Initiatives Launch as Markets Are Hacked

In This Issue

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New Crypto Products Launch; Market Reports Published; Treasury Dept. Addresses Crypto Tax; Crypto Enforcement Actions and Threats Continue

In This Issue:

Reports Address Crypto M&A and Metaverse, New Crypto Products Launch

Treasury Dept. Letter Addresses Crypto Tax; Reports Address Crypto Risks

US, UK and Canadian Law Enforcement Take Aim at Cryptographic Assets

Counterfeits, Wash Trading and Bots: Crypto Market Threats Continue

Chainalysis Previews 2022 Cryptocurrency Crime Report Findings Continue Reading

CBDC Research Published, Crypto Products Launch, Report Addresses NFT Money Laundering Risks, UK Addresses DeFi Tax, DOJ Brings $4.5B Crypto Case

In This Issue:

CBDC Research Published, Fintech Firms and Banks Launch Crypto Initiatives

US Department of Treasury Guidance Notes NFT Money Laundering Risks

A Major US Banking Agency Prioritizes Crypto; Market Integrity in Focus; UK Updates DeFi Tax Guidance

DOJ Charges Couple for Laundering $4.5B in Crypto, UN Reports Crypto Threats Continue Reading

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