Crypto Financial Products Announced, MIT Seeks to Improve Bitcoin Codebase, SEC Addresses Digital Assets, DeFi Hacks Continue, Crypto Theft Data Published

In this issue:

Crypto Firms Launch New Services, MIT Seeks to Improve Bitcoin Codebase

Institutional Cryptocurrency Investment Products Advance, New Data Published

SEC Focuses on Digital Assets, DeFi Hacked, Crypto Theft Data Published

Crypto Firms Launch New Services, MIT Seeks to Improve Bitcoin Codebase

By Keith R. Murphy

A San Francisco-based cryptocurrency custody firm successfully completed an $80 million funding round, following its recent procurement of a federal banking charter from the Office of the Comptroller of Currency (OCC). According to the recent news update, the company is the first crypto native to obtain a charter from the OCC, making it the first national “digital asset bank” in the country.

According to a recent press release, a leading Swiss private bank has added cryptocurrency to its client offerings, incorporating Sygnum’s B2B banking platform. The new offering was reportedly driven by increasing client demand and is intended to allow clients to buy, hold and trade multiple cryptocurrencies, including bitcoin, ether, Bitcoin Cash and Tezos.

Ripple recently announced that it is piloting a private version of the public XRP Ledger to provide a secure solution for the issuance and management of central bank digital currencies (CBDCs). According to a blog post, the CBDC Private Ledger will be built for payments and will be able to handle the large volume and speed of transactions that central banks require. In a separate development, according to reports, a major Japanese e-commerce company is now allowing users to shop at Japanese merchants using various cryptocurrencies, including bitcoin, ether and Bitcoin Cash.

According to recent reports, the MIT Media Lab’s Digital Currency Initiative has raised $4 million from prominent backers to fund bitcoin research and development. Among other goals, the new program, called the Bitcoin Software and Security Effort, will dedicate resources to the development of Bitcoin Core, which is the underlying codebase of the open-source financial network, to harden the bitcoin network and to shore up vulnerabilities.

For more information, please refer to the following links:

Institutional Cryptocurrency Investment Products Advance, New Data Published

By Joanna F. Wasick

This week, a major Boston-based financial services and bank holding company announced that it was appointed as the fund administrator and transfer agent of the VanEck Bitcoin Trust (the Trust), a bitcoin exchange-traded fund (ETF) that is pending approval by the Securities and Exchange Commission (SEC). The Trust’s investment objective is to reflect the performance of a bitcoin’s hourly price reflected in U.S. dollars, minus the expenses of the Trust’s operations.

A major New York-based multinational investment bank and financial services firm has reportedly restarted its cryptocurrency trading desk and will begin dealing in bitcoin futures and non-deliverable forwards for its clients. The bank first set up a cryptocurrency desk in 2018, but interest dropped as bitcoin’s price sharply fell.

A financial services and mobile payment company based in San Francisco announced last week that it bought another $170 million worth of bitcoin, calling bitcoin the “native currency” of the Internet. The company has been involved with cryptocurrency for years, having launched a payments app allowing users to trade in bitcoin in 2018.

A survey conducted by a major U.S. investment bank was released this week, finding that 78 percent of institutional investors have no plans to invest in cryptocurrency. Nevertheless, 58 percent said that cryptocurrencies are “here to stay.” The survey consists of roughly 3,400 investors representing 1,500 institutions around the globe. CaseBitcoin, an on-chain monitoring resource, recently reported on its findings that bitcoin’s compound annual growth rate (CAGR) is a whopping 196.7 percent, meaning that bitcoin has returned almost 200 percent every year for 10 years on a compound basis.

For more information, please refer to the following links:

SEC Focuses on Digital Assets, DeFi Hacked, Crypto Theft Data Published

By Teresa Goody Guillén

The SEC’s Division of Examinations (Division) recently issued a risk alert announcing its continued focus on digital asset securities. Specifically, the Division stated that in its experience, some activities related to the offer, sale and trading of digital asset securities present unique risks to investors. The SEC staff provided observations from their examinations of investment advisers, broker-dealers and transfer agents regarding digital asset securities that may assist firms in developing and enhancing their compliance practices. The Division also issued its annual 2021 examination priorities, which are intended to provide insights into its risk-based approach and include the areas it believes present potential risks to investors and the integrity of the U.S. capital markets. The 2021 priorities include a focus on attendant risks relating to fintech, and they preview what examinations of market participants engaged with digital assets will assess: (1) whether investments are in the best interests of investors, (2) portfolio management and trading practices, (3) safety of client funds and assets, (4) pricing and valuation, (5) effectiveness of compliance programs and controls, and (6) supervision of representatives’ outside business activities.

A decentralized finance (DeFi) application that allows users to bundle orders on various DeFi protocols and send them in one transaction reportedly lost $14 million after a fake contract was used to trick the app into thinking it was an Aave Protocol V2 update. It is believed that the contract transferred approved tokens to the bad actor’s address and that the attack also resulted in a $1.1 million loss from another DeFi protocol’s treasury funds.

Crystal Blockchain recently issued a Report on Security Breaches and Fraud Involving Crypto 2011-2021, which analyzed cryptocurrency transactions made by “crypto-criminals” after thefts between 2015 and 2020, with a focus on fund flow patterns made using the stolen cryptocurrency. The report provided the following key findings:

  • In 2020, crypto-criminals attempted to withdraw stolen and scam-sourced assets 13 times faster than in 2015.
  • Fifty-three percent of funds stolen by crypto criminals in 2015 were transferred to exchanges with verification requirements; this figure dropped to 8 percent in 2020.
  • Mixers and exchanges without verification requirements were the main destinations in 2020 for crypto-criminal fund withdrawals.
  • Crypto criminals usually attempt to send stolen funds to known entities using additional transactions with unknown intermediate addresses.
  • Between 2015 and 2020, about 81 percent of all withdrawal transfers from crypto criminals to known entities were made with nine hops in between.
  • Blockchain analytics tools are compelling crypto criminals to change their withdrawal patterns to remain uncovered (anonymous).

For more information, please refer to the following links:

Bahamas CBDC Prepaid Card, Ether Investment Products and Travel Rule Solutions Launch, Crypto Enforcement Settlements by OFAC and NYAG

In this issue:

Bahamas CBDC Integrates with Prepaid Card, Bitcoin Donation Data Published

Ether Investment Products Launch, New Publications Detail Crypto Adoption

Travel Rule Solutions Launch, DeFi Market Dissolves Following SEC Inquiry

Federal and State Agencies Pursue Multiple Cryptocurrency Offenders

Bahamas CBDC Integrates with Prepaid Card, Bitcoin Donation Data Published

By: Jordan R. Silversmith

A major U.S. financial services firm recently announced a collaboration with the Central Bank of The Bahamas to launch a new prepaid card to facilitate use of the Sand Dollar, a digital currency issued by the Central Bank of The Bahamas and treated the same as a traditional Bahamian dollar. The Sand Dollar became the first fully deployed digital version of a country’s fiat currency in October 2020; with the new prepaid card, Bahamians will be able to use the Sand Dollar wherever credit cards are accepted, whether in the Bahamas or around the world.

According to reports, the State Bank of India recently joined a major U.S. bank’s blockchain-based payment network. Officials hope joining the network will reduce transaction costs and payment settlement time.

A major U.S. financial services firm recently announced that its charity arm raised $28 million in cryptocurrency donations in 2020. The number beat 2019’s total of $13 million but was far short of previous years’ donations. According to a recent report, a U.S. healthcare provider has also benefited from recent cryptocurrency donations, having received bitcoin donations totaling over $800,000 from a single anonymous benefactor.

A Portuguese energy trading company recently announced that it would start accepting bitcoin as payment for electricity. The company plans to instantly convert received bitcoin into euros to protect it from price fluctuations.

For more information, please refer to the following links:

Ether Investment Products Launch, New Publications Detail Crypto Adoption

By: Veronica Reynolds

This week, two foreign-based investment firms announced plans to provide investors with exposure to ether, the cryptocurrency hosted on the Ethereum blockchain. The first, CoinShares, a European “digital asset investment house,” launched CoinShares Physical Ethereum (ETHE), a new exchange-traded product with each unit reportedly backed by 0.03 ether at launch. ETHE will launch with approximately $75 million assets under management. The second, a Canadian investment management firm, announced plans to launch the first exchange-traded fund (ETF) to invest directly in ether.

In the wake of “the biggest crypto bull run since 2017,” cryptocurrency publication Decrypt highlighted nine publicly traded companies that “have adopted Bitcoin as a reserve asset, and hold direct control over their Bitcoin funds.” Such companies include a large business analytics platform that has adopted bitcoin as its primary reserve asset and a global auto manufacturer that made headlines last week upon investing $1.5 billion in cryptocurrency.

One of the world’s largest cryptocurrency exchanges, Gemini, unveiled “Cryptopedia” this week—an online repository of cryptocurrency-related information with the goal of “providing free, high-quality crypto education to the world.” Modeled after a traditional encyclopedia, Cryptopedia is a platform that provides a comprehensive educational overview of the cryptocurrency ecosystem.

For more information, please refer to the following links:

Travel Rule Solutions Launch, DeFi Market Dissolves Following SEC Inquiry

By: Joanna F. Wasick

Two solutions were recently announced to help cryptocurrency companies comply with the Travel Rule. The rule, issued by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and aimed at deterring and preventing money laundering, requires financial institutions to share information about the parties to transactions that are over a certain amount. CipherTrace, a blockchain analytics company, has backed TRISA, a testnet that includes a directory of virtual asset service providers and scenario testing for contact with noncompliant firms. BIGG Digital Assets Inc., owner of Blockchain Intelligence Group, has partnered with Netki, a provider of remote digital identity verification technology, to offer their Travel Rule solution, TransactID.

Earlier this month DiFi Money Market (DMM), a decentralized finance protocol, announced it would cease operations, following an inquiry into the company by the U.S. Securities and Exchange Commission (SEC). A post issued by DMM stated that it had received a subpoena from the SEC in December and had begun negotiations with the agency. However, DMM concluded “that an orderly wind-down of the project is best.” DMM published a link through which holders of DMM’s mTokens could redeem them.

Earlier this week, a U.S. federal court dismissed a private class action against Bancor, an on-chain liquidity protocol organized under Swiss law, with offices in Switzerland and Israel. Plaintiffs had brought suit in New York, alleging damages arising from Bancor’s initial coin offering. However, the court ruled that it had no jurisdiction over the foreign entity, and that plaintiffs otherwise failed to allege they suffered losses caused by Bancor. The court further found that given the circumstances, including that the plaintiffs themselves are foreigners, New York was neither a reasonable nor a convenient forum to hear this case.

For more information, please refer to the following links:

Federal and State Agencies Pursue Multiple Cryptocurrency Offenders

By: Keith R. Murphy

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) recently announced a $507,375 settlement with a major U.S. cryptocurrency payment processor. According to a press release, the settlement resolved potential civil liability faced by the company for more than 2,102 apparent violations of multiple U.S. sanctions programs. The gravamen of the charges was that the company allowed persons in countries subject to sanctions programs to transact with merchants in the United States and elsewhere using cryptocurrencies, despite the company having location data about the persons, including Internet Protocol addresses, prior to effecting the transactions. According to an Enforcement Release published by OFAC in connection with the settlement, the settlement amount reflects OFAC’s determination that the company’s “apparent violations were not voluntarily self-disclosed and were non-egregious.”

The Office of the New York Attorney General announced this week that two cryptocurrency trading platforms, Bitfinex and Tether, were required to end all trading activity with New Yorkers and pay an $18.5 million fine as a result of alleged false statements and efforts to hide massive financial losses from investors. The charges included that the companies falsely represented that the “tether” stablecoins issued by one of the companies were backed one to one by U.S. dollars in a reserve, and that the companies hid the movement of hundreds of millions of dollars between them in order to cover up losses of approximately $850 million involving a third-party “payment processor.” The settlement agreement includes certain mandatory reporting requirements for the companies.

A Department of Justice press release revealed the indictment this week of a Serbian man for alleged participation in a cryptocurrency fraud scheme to solicit U.S. investors through two companies purported to provide cryptocurrency mining and trading services. The indictment alleges that both companies were fraudulent, and that funds sent in by investors were laundered to a Philippines-based financial account and digital wallet.

For more information, please refer to the following links:

Crypto Payment Options Announced, Federal Reserve Official Addresses Bitcoin, US and Foreign Actions Target Crypto Crimes, DeFi Hacks Continue

In this issue:

Crypto Payment Options Announced, Federal Reserve Official Addresses Bitcoin

Enforcement Actions Target Crypto Trading, Hacking and Money Laundering

Flash Loan Attacks Cripple DeFi, Criminal ‘Retires’ with $1Billion in Bitcoin

Crypto Payment Options Announced, Federal Reserve Official Addresses Bitcoin

By: Joanna F. Wasick

Late last week, BitPay, a leading provider of cryptocurrency payment services, announced that U.S. users of its prepaid debit card, which allows users to make purchases using cryptocurrencies, can add their card to the digital wallet of a major U.S. technology firm’s mobile payment application to enable secure in-store, app and online purchases using cryptocurrencies. A press release noted that BitPay cardholders would also soon be able to use the digital wallets provided by two other major technology firms. Also last week, a global provider of digital marketing promotions announced a new reward program that provides users with a gift card that enables the recipient to receive bitcoin. The cardholder can deposit the bitcoin in an existing cryptocurrency wallet, or set up a new one, with instructions from the provider.

Earlier this week, James Bullard, the president and CEO of the Federal Reserve Bank of St. Louis (the Fed), said in a cable news interview that bitcoin poses no serious threat to the U.S. dollar as the world’s reserve currency. Bullard likened bitcoin to pre-Civil War currencies that were privately issued and were disfavored by the public because of their lack of stability, and the public’s overall desire for one uniform currency. Bullard also stated that the dollar’s position has not been undermined by existing currency competition between fiat currencies. He compared bitcoin’s rising price to historic fluctuations in gold prices, saying neither should affect Fed policy.

For more information, please refer to the following links:

Enforcement Actions Target Crypto Trading, Hacking and Money Laundering

By: Keith R. Murphy

This week separate actions were commenced by the Securities and Exchange Commission and by the New York Attorney General against a digital asset trading company and its officers. According to reports, the actions were brought in connection with the alleged offer and sale of digital asset securities from December 2017 to May 2018, and the trading of cryptocurrencies such as bitcoin without registering as a broker-dealer. Among other claims, the allegations include that the company failed to file a registration statement relating to the offering of digital tokens and that the offering did not meet any exemption from registration, and as a result, prospective investors were not provided with the required information for such an offering. The Attorney General’s action seeks to shut the company down, alleging that investors were defrauded by hidden trading fees and the sale of “worthless” tokens.

According to a press release from the Department of Justice this week, three North Korean computer programmers were indicted in December 2020 on charges of participating in a wide-ranging conspiracy to steal cryptocurrency from financial institutions, to create malicious cryptocurrency applications, and to develop and fraudulently market a cryptocurrency platform. The indictment alleges that the programmers are part of a military intelligence agency within the Democratic People’s Republic of Korea. The press release includes a representative of the US Secret Service observing that the case is a “particularly striking example of the growing alliance between officials within some national governments and highly-sophisticated cyber-criminals.”

Citing law enforcement sources, a French radio station reported that members of a ransomware cartel were recently arrested in Ukraine. Those arrested reportedly provided support for the cartel’s bitcoin money laundering operations, which involve laundering ransom-demand profits through the Bitcoin ecosystem through bitcoin mixing services.

For more information, please refer to the following links:

Flash Loan Attacks Cripple DeFi, Criminal ‘Retires’ with $1Billion in Bitcoin

By: Veronica Reynolds

Decentralized Finance (DeFi) protocols Cream Finance and Alpha Finance were victims of one of the largest flash loan attacks yet to have occurred, with attackers absconding with approximately $37.5 million, according to recent reports. Alpha Finance confirmed that one of its products was the root cause and that the loophole had been remediated. This attack comes on the heels of the recent attack on Yearn Finance, which according to reports, drained approximately $11 million and was caused by an exploit on one of its DAI lending pools.

A large auto manufacturer recently experienced a ransomware attack, with attackers demanding $20 million in bitcoin for decryption and to prevent disclosure of stolen data. Reports indicate that the DoppelPaymer ransomware gang is the group responsible for the attack.

One of the most popular “carding” marketplaces, Joker’s Stash, shut down this month, with the founder allegedly retiring after accumulating over $1 billion in bitcoin, according to reports. Carding refers to the process of stealing credit card credentials and reselling them online, usually in exchange for bitcoin. However, the true reason for the marketplace’s closure is yet unconfirmed, with some speculating that Interpol’s and the FBI’s coordinated seizure of the site’s domains in December might have prompted its demise.

For more information, please refer to the following links:

Financial Firms Move to Integrate Cryptocurrencies, Blockchain Solutions Announced Across Markets, Agencies Target Crypto Crimes as Threats Continue

In this issue:

Payment Firms Adopt Cryptocurrencies, Company Purchases $1.5 Billion in Bitcoin

Blockchain Enterprise Initiatives Announced Across Global Markets

US and Foreign Agencies Take Action Against Cryptocurrency Fraud Schemes

Report Details North Korea Links to Crypto Hacks, Ransomware Connections

Payment Firms Adopt Cryptocurrencies, Company Purchases $1.5 Billion in Bitcoin

By: Veronica Reynolds

According to a press release, last week the Office of the Comptroller of the Currency provided conditional approval to Protego Trust Bank for a trust charter to custody digital assets. The move will enable Protego clients to “hold, trade, lend and issue digital assets.” In related news, startup MetalPay, a peer-to-peer cryptocurrency payments platform, has filed with the Office of the Comptroller of the Currency to become a U.S. national bank. The application was filed for “First Blockchain Bank and Trust, N.A.” The company reportedly plans to submit additional applications with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Bank of San Francisco, with the goal of accepting cash deposits (in addition to cryptocurrency deposits) that are insured by the FDIC. Such a move would reportedly make it the first FDIC-insured crypto bank.

This week, a large global financial services firm announced plans to support select cryptocurrencies on its payments network. According to its blog, the company intends to select cryptocurrencies that focus on consumer protection and compliance. Responding to other recent cryptocurrency announcements by numerous traditional payment platforms, Gartner, in a recent blog post, suggests a future where credit card brands move beyond bitcoin trading to stablecoin payments, which are less volatile than bitcoin.

A Virginia bank announced this week that its customers may now buy and redeem bitcoin at its ATMs. Such transactions will be accompanied by an 8 percent fee. And a New York bank known for being the world’s largest custodian of assets announced plans to custody cryptocurrencies, with plans to treat digital assets like any other asset. To implement the solution, the bank is working to develop “a client-facing prototype … designed to be the industry’s first multi-asset digital custody and administration platform for traditional and digital assets.”

In news that made worldwide headlines, a recent SEC filing by a global auto manufacturer made public its purchase of $1.5 billion in bitcoin, with the company confirming its plans to accept payment in bitcoin. The large purchase will likely serve as a liquidity reserve to accept bitcoin payments. Commenting on its recent filing, the company explained it bought the bitcoin in order to obtain “more flexibility to further diversify and maximize returns on [its] cash.”

For more information, please refer to the following links:

Blockchain Enterprise Initiatives Announced Across Global Markets

By: Robert A. Musiala Jr.

A recently published research paper “proposes a new and novel track and trace blockchain-enabled Medledger system that leverages the Hyperledger Fabric blockchain platform using chaincodes (smart contracts)” to improve security in the pharmaceutical supply chain. An abstract of the paper notes that implementing blockchain in the pharma supply chain enhances “efficiency and safety with high integrity, reliability, and security that reduces the likelihood of meddling with stored data.”

According to a recent press release, a major German bank has teamed up with a major German software firm to integrate the R3 Corda blockchain into the software firm’s cloud platform to promote new supply chain and trade finance solutions. In another press release from Germany, an IoT provider announced that it has deployed SECORA Blockchain near-field communication technology to help record and secure data on physical items to a blockchain database. The solution aims to help prevent counterfeiting in the consumer goods, business-to-business products, IT goods and luxury goods industries.

In the Asia-Pacific region, a Big Four accounting and consulting firm recently announced that it had joined the Financial Blockchain Shenzhen Consortium, a nonprofit organization dedicated to the use of blockchain for financial applications. According to a press release, as part of this initiative, the firm will seek to deploy its proprietary blockchain solutions for supply chain traceability and financial statement audits.

For more information, please refer to the following links:

US and Foreign Agencies Take Action Against Cryptocurrency Fraud Schemes

By: Teresa Goody Guillén

Late last week, the founder of a pair of cryptocurrency hedge funds in New York, New York, with over $100 million in investments, pleaded guilty to securities fraud. According to a press release, the defendant drained almost all the assets from the cryptocurrency fund he operated, spending investors’ money on “indulgences and speculative personal investments,” and tried to steal investor money from one fund to pay back investors in the other fund. The charge carries a maximum term of 20 years in prison.

A Serbian man has been extradited from Serbia to the United States to face allegations in Texas that he and others defrauded investors of more than $70 million in a scheme involving fraudulent investments in binary options and cryptocurrency mining. The defendant and over a dozen others were indicted by a federal grand jury on charges of conspiracy to commit wire fraud and conspiracy to commit money laundering in July 2020. If convicted, the defendants could face up to 20 years in prison.

A former phone company employee was recently charged with conspiracy to commit wire fraud for his role in a subscriber identification module (SIM) swap scam, where the defendant switched SIM cards linked to customers’ phone numbers to a different phone number in an attempt to access customers’ various personal accounts, including email accounts, bank accounts and cryptocurrency accounts as well as any other accounts that use two-factor authentication. In another alleged SIM-swapping scheme, it is reported that a criminal gang stole over $100 million in cryptocurrencies by a series of SIM-swapping attacks targeting high-profile victims in the United States. There are eight arrests reported in this international sweep, which follows a yearlong investigation jointly conducted by law enforcement authorities from the United Kingdom, the United States, Belgium, Malta and Canada, with international activity coordinated by Europol.

German prosecutors reportedly confiscated more than $60 million worth of bitcoin from an alleged fraudster, but he will not give them the password to unlock the funds. The man had been sentenced to more than two years in jail for covertly installing software on other computers to harness their power to “mine,” or produce, bitcoin.

For more information, please refer to the following links:

Report Details North Korea Links to Crypto Hacks, Ransomware Connections

By: Jordan R. Silversmith

According to a confidential UN report, hackers working on behalf of the North Korean government stole cryptocurrencies valued at more than $300 million in cyberattacks from 2019 to November 2020 and used those funds to pay for nuclear weapons. A crime syndicate working on behalf of the North Korean government, the Lazarus Group, reportedly played a major role in the thefts, having stolen around $275 million worth of cryptocurrency from an exchange in 2020, representing half of all cryptocurrency stolen in 2020. Hackers working for the North Korean government, such as the Lazarus Group, reportedly continue to launder stolen cryptocurrencies through over-the-counter brokers in China and are also reported to be exploring new money laundering techniques involving DeFi platforms.

Recent blockchain analysis has found connections between four of 2020’s largest ransomware strains. The four prominent strains – Maze, Egregor, SunCrypt and DoppelPaymer – all use the RaaS model for ransomware, meaning that affiliates perform the ransomware attacks and pay a percentage of each victim payment to administrators and creators of the strains. Researchers have pointed out that many RaaS hackers switch between different strains and that there may be major overlap between affiliates migrating back and forth between the major ransomware strains.

While physical attacks involving cryptocurrencies are rare, Hong Kong police recently reported that a gang lured a cryptocurrency trader to an office for a deal and then robbed her of HK$3.5 million (US$448,770) in cash at knifepoint. Meanwhile, cyberattacks are continuing apace in 2021, with the latest being an attack on a Yearn Finance DAI vault that resulted in a loss of $11 million of cryptocurrency value.

For more information, please refer to the following links:

Crypto Exchanges Announce Market Developments, US Report Addresses Crypto Tax, New DOJ and SEC Enforcement, Reports Detail Crypto Crimes

In this issue:

Cryptocurrency Exchanges and Financial Firms Announce Market Developments

US Report Covers Crypto Tax Issues, Israeli Ruling Says Tokens Are Securities

DOJ, SEC and Europol Bring Various Cryptocurrency Enforcement Actions

Reports Provide Insights on Cryptocurrency Crimes and Darknet Activities

Cryptocurrency Exchanges and Financial Firms Announce Market Developments

By: Veronica Reynolds

Last week, Coinbase signified its intent to become a publicly traded company by announcing a proposed direct listing of its Class A common stock under Form S-1. Coinbase had previously confidentially submitted its Form S-1 to the Securities and Exchange Commission (SEC) on Dec. 17, 2020. According to reports, the venue for the direct listing will be Nasdaq.

Gemini recently released its report on the state of cryptocurrency in the U.K., which summarizes a survey of 2,000 respondents and captures demographic trends related to cryptocurrency in the region. For instance, of the respondents who are current or previous cryptocurrency investors, nearly 42 percent are women. The report also notes that respondents who are cryptocurrency investors are less likely to own their own home than those not interested in cryptocurrency, are more likely than not to be in a relationship and have children at home, and are most likely to be between the ages of 18 and 44.

Another major cryptocurrency exchange announced its acquisition of a leading debit and credit card issuer across the U.K. and Europe this week. According to a blog post, the acquisition provides the exchange with a technically sophisticated payments platform, accompanied by a full EMI license, which will allow the exchange “to issue multi-asset, crypto-enabled debit cards across the U.K. and Europe.”

In foreign markets, a Canadian investment firm recently completed an initial public offering of its cryptocurrency fund on the Toronto Stock exchange. And in Switzerland, according to a recent press release, Sygnum Bank and Fine Wine Capital AG “have successfully tokenized a range of premium investible wines, creating the first asset tokens issued under the new Swiss DLT law.”

For more information, please refer to the following links:

US Report Covers Crypto Tax Issues, Israeli Ruling Says Tokens Are Securities

By: Joanna F. Wasick

The Law Library of Congress published a January 2021 report on the taxation of cryptocurrency block rewards. The report provides the findings of foreign law specialists on the tax treatment in 31 countries of new tokens obtained by cryptocurrency mining or staking, known as “block rewards.” The report also addresses the tax implications of cryptocurrency tokens acquired through airdrops and hard forks (“chain splits”). The report shows that while various tax authorities have published guidance on the taxation of mined tokens, only a few specifically address the taxation of tokens obtained by staking. For countries where no explicit taxation rules on block rewards are available, the report provides information, such as general taxation rules, proposed legislation, official statements, and comments from legal scholars and tax experts, that may help in determining the tax treatment of these assets. The report complements a broader comparative study on regulatory approaches to cryptoassets that the Law Library published in April 2019.

This week, the Israeli Securities Authority issued an advance ruling paper, in which it found that cryptocurrency is a security subject to the Israeli Securities Law. The paper comes in response to a request by a blockchain company for a determination that its token was a utility token, meant to be used only in connection with the company’s services, which allow users to cancel cryptocurrency transactions. The authority rejected the company’s arguments, finding that (1) the company’s tokens may have a secondary market for investment purposes, (2) the tokens are a significant asset of the company, and (3) the company has a right to change the value of the tokens independently and allow their use for future developments.

For more information, please refer to the following links:

DOJ, SEC and Europol Bring Various Cryptocurrency Enforcement Actions

By: Teresa Goody Guillén

According to a recent press release from the U.S. Department of Justice (DOJ), a California man has been charged with money laundering and operating an unlicensed money transmitting business that exchanged tens of millions of dollars in bitcoin and cash. Upon pleading guilty, the defendant will face a statutory maximum sentence of 25 years in federal prison.

According to another recent report, a California couple is alleged to have used their status with the U.S. Navy to access the personal information of more than 9,000 people, which they sold to be used in identity thefts in exchange for bitcoin payments of at least $160,000. The couple was indicted on charges of conspiracy to commit wire fraud, wire fraud and aggravated identity theft, and they face maximum penalties of 20 years in prison.

The Securities and Exchange Commission (SEC) recently charged three individuals with defrauding hundreds of retail investors out of more than $11 million through two fraudulent and unregistered digital asset securities offerings. The SEC alleges that several individuals drafted fraudulent promotional materials that were disseminated to the investing public and that those materials contained false statements, including that the digital tokens would be deliverable on the Ethereum blockchain, that the invested funds would be used to develop a coin that was “mineable” and that the tokens would be tradable on a proprietary digital asset trading platform at the platform’s “launch.” The DOJ brought a parallel criminal action against one of the defendants.

According to a recent press release, Spain’s Civil Guard, Catalan police, Andorra and Europol have collectively dismantled an investment fraud in foreign exchange and binary options markets and have arrested six suspected fraudsters aged between 20 and 34 years old. During two house searches, police reportedly seized eight vehicles; several electronic devices; an estimated $84,000 in fiat money and cryptocurrencies including bitcoin, ether, XRP and OmiseGo; and multiple bank accounts linked to the company.

For more information, please refer to the following links:

Reports Provide Insights on Cryptocurrency Crimes and Darknet Activities

By: Jordan R. Silversmith

A recently published report from CipherTrace on cryptocurrency crime and anti-money laundering showed massive growth in the amount of cryptocurrency crime last year. The report showed that in 2020, large crypto thefts, hacks and frauds amounted to $1.9 billion, which is the second-highest annual value ever recorded. Another recent report on cryptocurrency-related crime showed some marked geographical distinctions in darknet market activity. According to Chainalysis, while the U.S. and Western Europe feature the most darknet vendors, Eastern Europe and China are the source of the vast majority of money laundering activity related to cryptocurrencies. Meanwhile, darknet vendors continue to profit even during the pandemic, as scammers are now advertising COVID-19 vaccines on the darknet for as much as $1,000 worth of bitcoin. Recent analysis found over 340 fraudulent ads in 34 pages, while there were phony vaccine ads in only 8 pages last month.

For more information, please refer to the following links:

Podcast: BakerHostetler Blockchain University: Beyond Cryptocurrency – Non-Financial Use Cases for Blockchain

The fourth episode in the series provides an overview of how Blockchain is being used today in non-financial applications. Topics discussed include using blockchain in various sectors, including the food supply and pharmaceutical industries, maritime shipping, the cobalt supply chain, self-sovereign identity, credentialing and records management.

Questions & Comments: rmusiala@bakerlaw.comvreynolds@bakerlaw.com

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FinCEN Extends Crypto Rule Comment Period, Crypto Products Launch; Enforcement Agencies Target Crypto Crimes in US, Japan and China

In this issue:

FinCEN Extends Crypto Rule Comment Period, Crypto Payment Products Launch

Enforcement Agencies Target Cryptocurrency Crimes in US, Japan and China

FinCEN Extends Crypto Rule Comment Period, Crypto Payment Products Launch

By: Robert A. Musiala Jr.

This week the U.S. Financial Crimes Enforcement Network (FinCEN) published a notice extending the comment period for its proposed rule that would impose new requirements on certain transactions involving convertible virtual currency or digital assets with legal tender status. The comment period has been extended to March 29, 2021.

In cryptocurrency payments news, according to a recent press release, a major U.S. nonprofit organization dedicated to eliminating cancer has announced a partnership with The Giving Block, a cryptocurrency donations company, to launch a new cancer research project that will be exclusively funded with cryptocurrency donations. Separately, cryptocurrency exchange LVL has reportedly begun taking preorders for a new cryptocurrency debit card product issued in partnership with a major U.S. financial services firm. And two major cryptocurrency exchanges, Kraken and eToro, recently published market reports with analysis of current trends in the cryptocurrency industry.

In a final notable item, earlier this month, reports found that someone transferred 74.6 million Synthetix Network Tokens (SNX), worth over $1 billion, on the Ethereum network through a contract called “Synthetix: Reward Escrow.” The transaction fee for the transfer was a mere $7.54. Synthetix is a decentralized finance protocol for trading asset-pegged synthetic tokens on Ethereum. This transaction is one of the largest single cryptocurrency transactions to date.

For more information, please refer to the following links:

Enforcement Agencies Target Cryptocurrency Crimes in US, Japan and China

By: Joanna F. Wasick

A cryptocurrency trader, Jeremey Spence (aka Coin Signals), was recently charged in Manhattan federal court for running a Ponzi scheme involving more than $5 million and 170 victims. According to an announcement released this week by the U.S. Attorney, Spence solicited deposits for a number of cryptocurrency funds he operated by making false representations to investors, including that they would see 148% returns. In fact, Spence’s client accounts lost money, and Spence used new investor money to pay out earlier investors. Criminal charges have been brought by the U.S. Attorney, and the Commodity Futures Trading Commission has filed a separate federal civil enforcement action.

Earlier this week, Jerry Ji Guo was sentenced in a California federal court for conducting a fraud in which he represented himself as an initial coin offering consultant and promised his clients that he would perform marketing and publicity services for them. Instead of doing so, Guo embezzled his clients’ funds. Guo was ordered to pay over $4 million in restitution and was sentenced to six months in prison.

Also this week, the U.S. Department of Justice announced a coordinated international law enforcement action to disrupt a sophisticated form of ransomware known as NetWalker. The action includes charges against a Canadian national in relation to the attacks, the seizure of over $400,000 in cryptocurrency from ransom payments and the disablement of a dark web communication resource.

Last week in Japan, about 30 people were charged with trading almost $100 million worth of cryptocurrency while knowing it was stolen off a Tokyo-based exchange three years ago. Japanese authorities allege the people were exchanging the cryptocurrency on a darknet marketplace. Separately, according to a recent report, a key executive from cryptocurrency exchange Huobi is currently in custody of Chinese police in relation to an investigation of the exchange’s over-the-counter trading service.

For more information, please refer to the following links:

FinCEN Proposed Rule Halted, Exchanges and Banks Expand Crypto Products, SEC Brings Action Against Token Issuer, Crypto Threat Reports Published

In this issue:

Exchanges and Banks Expand Cryptocurrency Services and Products

FinCEN Proposed Rule Halted, Banks and Crypto Exchanges Adjust Policies

SEC Brings Action Against SAFT and Token Issuer, Related Statement Published

Reports Provide Details on Criminal Activities Involving Cryptocurrencies

Exchanges and Banks Expand Cryptocurrency Services and Products

By: Jordan R. Silversmith

A major U.S. cryptocurrency exchange recently announced the launch of its asset hub. The initiative is intended to “streamline the asset listing process … and expand the number of services offered to digital asset issuers.”

A California-based bank with substantial holdings in digital currencies recently announced it had accepted over $2.9 billion in new deposits from new and existing cryptocurrency customers in Q4 2020. The majority of these new deposits came from cryptocurrency exchanges, bringing the bank’s total amount of digital currency customers to 969. Separately, according to reports, a New York-based bank announced that its deposits from cryptocurrency customers now total approximately $10 billion.

Huobi Global, a major cryptocurrency exchange, recently announced an initiative with a British crypto payment services firm to gain more access to European and U.K.-based banking systems. According to reports, the exchange’s over-the-counter platform will now be able to settle transactions instantly in euros and pounds. Meanwhile, this week an Austrian digital investment platform announced the launch of a debit card allowing users to shop with cryptocurrencies.

For more information, please refer to the following links:

FinCEN Proposed Rule Halted, Banks and Crypto Exchanges Adjust Policies

By: Veronica Reynolds

This week the Biden administration froze FinCEN’s proposed rule on “unhosted wallets,” which related to certain transactions involving convertible virtual currency or digital assets with legal tender status. If enacted, the rule would have required exchanges to file “currency transaction reports” for customers engaged in over $10,000 of cryptocurrency transactions per day and to store identifying information for customers transferring over $3,000 per day in cryptocurrency to private crypto wallets.

Meanwhile, several cryptocurrency exchanges and banks have recently taken actions that appear to be based on the evolving regulatory landscape. In the U.S., a major cryptocurrency exchange announced a halt on XRP trading, the latest cryptocurrency exchange to have done so. In the U.K., a major bank has reportedly banned customers from transferring cryptocurrency profits earned through exchanges to their bank accounts; this follows a broader trend in the U.K. banking industry precluding customers from using debit or credit cards to purchase cryptocurrency assets. And in the Netherlands, Bitstamp users are now required to prove ownership of external wallets before transferring funds to such wallets, a requirement that is reportedly a direct response to Dutch anti-money laundering regulations that became operative in late 2020.

For more information, please refer to the following links:

SEC Brings Action Against SAFT and Token Issuer, Related Statement Published

By: Robert A. Musiala Jr.

Late last week, the U.S. Securities and Exchange Commission (SEC) published a cease-and-desist and settlement order (Order) against Wireline Inc. involving an alleged unregistered securities offering related to so-called SAFT agreements. Wireline is described in the Order as “an early-stage project focused on the development of a decentralized, blockchain based platform for ‘microservices’ applications.” According to the Order,

Wireline offered and sold securities in the form of investment contracts when it offered and sold digital assets through simple agreements for future tokens (“SAFTs”). The SAFTs provided that upon the public release of Wireline’s marketplace, Wireline would distribute those digital tokens to investors, who were counterparties to the SAFTs. … The Offering was not registered pursuant to the federal securities laws, and the offer and sale did not qualify for an exemption from the registration requirements. Wireline never distributed the digital tokens to investors.

Regarding the SAFTs, the Order notes that while Wireline “collectively filed three Forms D with the Commission,” it “did not qualify for the exemption under Rule 506(b) because it offered and sold the investment contracts through a general solicitation.” The Order also alleges Wireline “violated the antifraud provisions of the federal securities laws with respect to the offering by making materially false and misleading statements about the viability of its platform and the timetable for the issuance of the tokens.” Among other things, the Order requires Wireline to notify its 28 SAFT investors that it will not distribute any digital tokens, publish notice of the Order on its public website and social media channels, and pay a civil penalty of $650,000.

In a public statement, SEC Commissioner Hester M. Peirce noted “a concern about the settlement.” According to the statement, “[B]y including a provision whereby Wireline will not distribute the tokens pursuant to the SAFTs, [the] settlement perpetuates an approach that suggests that tokens themselves are securities and thus complicates the development of crypto networks.” Among other things, Commissioner Peirce noted that “the security label applied to tokens … stifles network effects before they even have a chance to make the network vibrant.” According to Commissioner Peirce, “A better course would be for us to treat the original capital-raising event for an unlaunched network as a sale of securities, but not to stretch the securities analysis to include subsequent sales of tokens for use on a launched network.”

For more information, please refer to the following links:

Reports Provide Details on Criminal Activities Involving Cryptocurrencies

By: Jordan R. Silversmith

A recent report by Chainalysis on cryptocurrency crime in 2020 finds that while scams and darknet markets dominated the year by total revenue, ransomware continues to be a problem. The report showed a drop in the criminal share of all cryptocurrency activity in 2020, falling to just 0.34 percent, or $10.0 billion in transaction volume, from 2019’s numbers of 2.1 percent, or roughly $21.4 billion, worth of transfers. Scams continued to make up the majority of all crypto-related crime, but ransomware increased over 311 percent from 2019 as increased work-from-home opened up more vulnerabilities for hostile actors. Chainalysis also recently released a report alleging that personalities involved in the riot at the U.S. Capitol had received over $500,000 in bitcoin from a French donor one month prior to the events.

For more information, please refer to the following links:

Crypto Trust to Become Bank, FinCEN Comment Period Extended, Navy Awards Blockchain Contract, Dark Market Seized, Illicit Exchange Owner Sentenced

In this issue:

Crypto Trust to Convert to Bank, FinCEN Extends New Rule Comment Period

Bitcoin Firms List on Public Markets, Japan Diverges from SEC on XRP Status

Navy Contracts for Blockchain Solution, SSI Report and Market Data Published

Enforcement Actions Target Dark Web Market and Illicit Crypto Exchange

Crypto Trust to Convert to Bank, FinCEN Extends New Rule Comment Period

By: Veronica Reynolds

The Anchorage Trust Company, a subsidiary of Anchor Labs, an advanced digital asset platform (Anchorage), secured conditional approval this week from the Office of the Comptroller of the Currency (OCC) to convert to a National Trust Bank. As a trust company, Anchorage offers custody services related to transactions in digital assets and cryptocurrencies, as well as governance, staking and settlement services, and will continue to perform the activities of a fiduciary, agency or custodian post-conversion. As part of a conditional operating agreement underlying the conversion, Anchorage agreed to certain of the OCC’s risk management expectations as well as capital and liquidity requirements.

Also this week, the U.S. Financial Crimes Enforcement Network (FinCEN) announced an extension of the comment period for its proposed rule-making related to certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA). The comment period was extended by 15 days for the proposed requirements on verifying the “identity of customers in relation to transactions above certain thresholds involving CVC/LTDA wallets not hosted by a financial institution” and “CVC/LTDA wallets hosted by a financial institution in certain jurisdictions identified by FinCEN.” Separately, the comment period was extended to 45 days for the proposed requirements that “banks and MSBs report certain information regarding counterparties to transactions by their hosted wallet customers.”

For more information, please refer to the following links:

Bitcoin Firms List on Public Markets, Japan Diverges from SEC on XRP Status

By: Jordan R. Silversmith

This week one of the largest U.S. marketplaces for cryptocurrencies and other digital assets announced that it would become a publicly traded company through a merger. The combined company will be renamed and will be listed on the New York Stock Exchange. Outside the United States, there were announcements this week related to two new bitcoin exchange-traded products (ETPs). In Canada, a prospectus for a new bitcoin exchange-traded fund (ETF) was filed with the Ontario Securities Commission. If approved, the ETF is planned to be listed on the Toronto Stock Exchange. A new bitcoin ETP also recently listed on the Swiss stock exchange SIX. The ETP tracks the price of bitcoin and is physically backed, bringing SIX’s total number of ETP providers to six and the number of ETPs listed to 34.

Following the Securities and Exchange Commission’s (SEC) lawsuit against Ripple Labs alleging that its XRP token is a security under federal law, a major U.S. digital currency manager announced it had begun dissolution of its XRP Trust. According to reports, the company will distribute cash proceeds from the trust’s liquidated store of XRP to trust shareholders. Meanwhile, Japan’s Financial Services Agency (FSA), the country’s securities regulation body, has reportedly said that XRP is not a security under Japanese law. This marks the first time that the FSA has commented directly on the legal status of XRP.

According to reports this week, Tether, a leading stablecoin project, announced that it had printed two billion dollar-backed tokens last week. Over 24.6 billion tethers circulate across Ethereum, Tron and Bitcoin’s Omni Layer, a fivefold increase from 4.8 billion in circulation one year ago. In another development, a major U.S. financial services company with significant investments in bitcoin recently announced a grant to fund a bitcoin developer’s work on software to improve the pool hash power of mining collectives. The grant comes in the form of an undisclosed sum for work on an implementation of Stratum V2, the next iteration of bitcoin mining protocol software.

For more information, please refer to the following links:

Navy Contracts for Blockchain Solution, SSI Report and Market Data Published

By: Robert A. Musiala Jr.

According to a recent press release, blockchain enterprise firm SIMBA Chain has been awarded a $1.5 million Small Business Innovation Research contract by the U.S. Office of Navy Research “to design and build a blockchain solution to enable demand sensing for the Defense Logistics Agency.” The press release notes that “demand sensing is essential to ensuring the U.S. military has critical replacement parts for various weaponry available when required.” The goal of the project will be “to use blockchain to dramatically improve vital supply chain interactions … to mitigate against disruption, issues, and threats to engineering and maintenance operations.”

In an article published this week, a leading self-sovereign identity (SSI) organization provided an overview of its work building solutions for digital identity management leveraging blockchain technology, cryptography, and supporting software and standards. The article discusses key areas of focus for SSI solutions, including vaccination credentials, government-issued IDs and expanding interoperability across SSI networks.

According to a recently published report by a technology research firm, “industrial blockchain revenue” is expected to reach $374 million in 2020, increase to $1 billion in 2022 “and then double by 2025.” The report attributes this expected growth to advancements in using blockchain to track and trace product supply chains in the food and beverage, transport, retail, and consumer sectors. The report also notes growing consumer interest in product provenance for ethical and environmental reasons.

For more information, please refer to the following links:

Enforcement Actions Target Dark Web Market and Illicit Crypto Exchange

By: Teresa Goody Guillén

According to a press release this week, the world’s largest illegal marketplace on the dark web has been taken offline as the result of an international operation involving law enforcement from Germany, Australia, Denmark, Moldova, Ukraine, the United Kingdom and the United States. The marketplace is reported to have had almost 500,000 users, more than 2,400 sellers, over 320,000 transactions, and over 4,650 bitcoin and 12,800 monero transferred, which collectively correlates to over US$169.6 million transacted on the site. It is believed that the vendors on the marketplace traded various drugs and sold counterfeit money, stolen or counterfeit credit card details, and anonymous SIM cards and malware.

According to another recent press release, a Bulgarian national was sentenced to 121 months in prison for his role in a transnational and multimillion-dollar scheme that defrauded at least 900 Americans. As reported, trial evidence showed that, among other things, the defendant owned and managed RG Coins, a cryptocurrency exchange headquartered in Bulgaria; and the defendant knowingly and intentionally engaged in business practices designed to assist fraudsters in laundering criminal proceeds. The criminal conspiracy engaged in a large-scale scheme of online auction fraud in which false advertisements were posted to popular online auction and sales websites (e.g., craigslist and eBay) for high-cost goods (typically vehicles) that did not actually exist. Upon receiving victims’ money, the conspiracy engaged in a complicated money laundering scheme including converting funds to cryptocurrency and transferring proceeds in the form of cryptocurrency to foreign-based money launderers.

This week, the United Kingdom’s Financial Conduct Authority (FCA) warned consumers that investing in cryptoassets, or investments and lending linked to them, generally involves very high risk, and consumers should be prepared to lose all their money. The FCA announcement cautioned against investments advertising high returns based on cryptoassets and noted specific concerns related to consumer protection, price volatility, product complexity, charges and fees, and false marketing materials.

For more information, please refer to the following links:

NY DFS Approves New Stablecoin Co., Blockchain Data Solutions Announced, New Cryptocurrency Regulatory and Enforcement Actions in U.S. and Abroad

In this issue:

NY DFS Approves New Stablecoin Company, Crypto Financial Products Continue Growth

Blockchain Used To Enhance Auto Geofencing and Combat Whiskey Fraud

US Financial Regulators Continue Crypto-Focused Regulatory Proposals

OFAC Settles With Crypto Custodian; Enforcement Actions in UK, Italy, Iran

NY DFS Approves New Stablecoin Company, Crypto Financial Products Continue Growth

By: Jordan R. Silversmith

New York’s Department of Financial Services (DFS) recently granted a charter under New York Banking Law to a Japanese cryptocurrency firm operating as a limited liability trust company. DFS’ approval allows the company to issue, administer and redeem Japanese yen- and U.S. dollar-pegged stablecoins in New York. In other fintech news, a Puerto Rico-based bank was recently given the go-ahead by the Puerto Rico Office of the Commissioner of Financial Institutions to begin providing custody services for multiple crypto-assets in early 2021. Meanwhile, a major American financial services company recently announced that its popular cash-transferal app will allow customers to earn bitcoin on every transaction.

The cryptocurrency debit card market continues to grow. According to reports from late December 2020, a crypto on-ramp service provider announced that it is partnering with a major American financial services company to offer cryptocurrency debit cards to its customers. The companies hope that the partnership will lead to greater access to cryptocurrencies by creating a “fiat-like convenience” for using cryptocurrencies online and in physical locations. The same American financial services giant also announced it had offered membership in its European program to a London-based payments platform that has issued a “crypto-enabled payment card.” Membership in the program allows companies to issue mainstream credit cards.

A major American cryptocurrency exchange recently announced its first Bitcoin Core developer grants to two developers. One plans to improve existing open source tools, including a web interface visualizing forks, while the other plans to improve the Bitcoin Core UI on Android and iOS. In a final notable development, a New York-based blockchain technology firm recently released a new guide on blockchain for decentralized finance. The guide outlines the uses of the Ethereum blockchain for developing new economic systems that shift from traditional, centralized financial institutions to P2P finance on the Ethereum blockchain.

For more information, please refer to the following links:

Blockchain Used To Enhance Auto Geofencing and Combat Whiskey Fraud

By: Teresa Goody Guillén

A major automaker announced that it conducted a three-year study showing how emerging technologies, such as dynamic geofencing and blockchain, can combine with hybrid-electric vehicles to help improve air quality. In Europe, low-emission zones are increasingly common in urban centers. The dynamic geofencing feature enables the vehicle’s zero-emission electric-drive mode to be activated automatically whenever it enters a low‑emission zone and constantly adjust the boundaries based on air quality, without any action by the driver. The study also used blockchain technology to record the time a vehicle entered or left a geofenced zone. The permanent time‑stamped records on the blockchain serve to ensure that “green miles” driven can be safely stored and potentially shared with other parties, such as city authorities and fleet owners.

According to recent reports, a technology company and university in Scotland are working together to tackle fraud within the whisky industry and estimate that as many as 40% of all rare vintage whiskies in circulation could be fake. As part of their proposed solution, rare whiskies will be authenticated for provenance and fitted with intelligent anti-tamper bottle closures. The bottles will then be protected and connected to a blockchain using near field communication tags, creating a digital record certifying the whisky’s origin and age. This further enables a digital record of any future chain-of-custody data such that the provenance of the bottle and its entire historical journey can be viewed, protecting and enhancing the bottle’s overall value by ensuring its authenticity.

For more information, please refer to the following links:

US Financial Regulators Continue Crypto-Focused Regulatory Proposals

By: Veronica Reynolds

National banks and federal savings associations (collectively, banks) have been granted permission to participate in independent node verification networks, such as those facilitated by distributed ledger or blockchain technologies, and use stablecoins (a type of cryptocurrency pegged to a stable asset) to facilitate payment activities, according to a letter published by the Office of the Comptroller of the Currency (OCC) this week. This permission allows banks to lawfully operate as “nodes” to “validate transactions, store transaction history, and broadcast data to other nodes” and use stablecoins “as a mechanism to facilitate payment activities,” such as the payment of remittances.

Just before the new year, the U.S. Financial Crimes Enforcement Network (FinCEN) noted its intent to amend the Report of Foreign Bank and Financial Accounts (FBAR) regulations with the goal of requiring the reporting of offshore accounts that hold cryptocurrency. According to reports, the proposed amendment to the regulations would likely align current FBAR regulations regarding cash held outside the U.S. by citizens or other U.S. persons with those related to cryptocurrencies and “could have the most visible impact on users of crypto exchanges like Bitstamp and Bitfinex.”

As previously reported, over the holidays FinCEN proposed rules to address what it refers to as the “illicit finance risks” posed by the existence and proliferation of cryptocurrencies. This week, multiple cryptocurrency-focused businesses publicly shared their responses to the FinCEN proposal, many of which outline opposition to the proposed rules.

For more information, please refer to the following links:

OFAC Settles With Crypto Custodian; Enforcement Actions in UK, Italy, Iran

By: Joanna F. Wasick

Last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it entered into a $98,830 settlement with BitGo Inc., a California-based technology company that offers noncustodial cryptocurrency wallet management services. OFAC had asserted that, as a result of deficiencies in BitGo’s sanctions compliance procedures, BitGo had failed to prevent persons in the Crimea region of the Ukraine, Cuba, Iran, Sudan (through late 2017, when Sudan sanctions were lifted) and Syria from using its wallet services, thereby apparently violating federal sanctions programs prohibiting transactions with people in those areas. The OFAC announcement goes on to list certain aggravating and mitigating factors assessed for the settlement. That BitGo had reason to know the location of its users was one of the factors weighing against the company, whereas the fact that it had cooperated with the investigation weighed in its favor.  OFAC also noted that the apparent violations were not voluntarily disclosed.

Italian police announced early this week that a series of hacks that caused the theft of €120 million from the now-bankrupt BitGrail exchange may have been an inside job. A 34-year-old man from Florence, who had worked at the exchange and cooperated with police in 2018 during the initial investigation, was arrested on charges of computer fraud, fraudulent bankruptcy and money laundering. Authorities said the individual was either behind the breaches or purposefully took no action to prevent them after the first attack. An official stated, “It is not yet clear whether he participated actively in the theft or if he simply decided not to increase security measures after discovering it.”

In the U.K., 21 individuals were recently arrested as part of an operation targeting customers of an online criminal marketplace that advertised stolen personal credentials. Charges were brought under the Computer Misuse Act and fraud offenses. Bitcoin, valued at €41,000, was also seized. In Iran, Iranian authorities reportedly have shut down 1,620 illegal cryptocurrency mining farms that were siphoning over 250 megawatts of electricity from the subsidized national power grid over the past 18 months. While mining is permitted in Iran, miners must be registered and follow certain regulations.

Last month, Crystal, a blockchain analytics firm, released its Blockchain End of Year Report for 2020. The report states that bitcoin funds received by virtual asset service providers increased by $118.6 billion to $272.9 billion in 2020. The amount of bitcoin received by darknet entities increased by $0.3 billion to $1.6 billion. And the amount received by mixers increased by $0.5 billion, meaning mixers received $1.4 billion bitcoin in total this year. According to the report, the amount transferred by darknet entities to exchanges increased slightly, to $533 million. The report also provides information on a number of other topics in the digital asset and blockchain space, including money laundering, security breaches, dormant bitcoin addresses and usage on different international cryptocurrency exchanges.

For more information, please refer to the following links:

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