Blockchain and Crypto Initiatives Launch in Foreign Markets, Guidance Issued on Ransomware and Crypto Derivatives, DOJ Indictment Alleges Crypto Tax Evasion

In this issue:

Crypto Initiatives Launched by Foreign Banks, Exchanges, Apps, Gaming Firms

New Guidance on Ransomware, Crypto Derivatives; Crypto Tax Report Published

DOJ Charges Allege Crypto Tax Evasion, Interpol Cites Crypto Privacy Threats

Crypto Initiatives Launched by Foreign Banks, Exchanges, Apps, Gaming Firms

By: Robert A. Musiala Jr.

According to a press release this week, the “Bank of Thailand (BOT) … has successfully launched the world’s first blockchain-based platform for government savings bonds issuing a total of $1.6B USD within two weeks.” According to the press release, the blockchain platform reduced the “operational complexity” and cost of issuing the bonds and reduced “a process that previously took 15 days to two days.”

According to another recent press release, a group of 14 banks has launched an initiative to create a “digital trade finance registry” to “improve transparency in commodity trade” and “serve as a secure central database for the banking industry to access records of trade transactions financed across banks in Singapore.” The press release notes that the project will be developed “on a blockchain network supported by technology provider dltledgers.”

In Japan, an affiliate business of LINE, the popular Japanese messaging app, announced plans to launch a service that will allow LINE users to lend their cryptocurrencies to BITMAX, a licensed Japanese cryptocurrency exchange that is also affiliated with LINE. Users of the service will reportedly receive a “rental fee” that is similar to interest on a traditional loan.

Late last week, the foreign affiliate of a major U.S. cryptocurrency exchange announced that it has received “a full Class F Digital Assets Business Act license to operate its acclaimed cryptocurrency exchange under the supervision of the Bermuda Monetary Authority (BMA).” Also late last week, a major video game publisher based in France announced the forthcoming public sale of its blockchain-based token, ATRI, which is scheduled to take place on Nov. 20 in partnership with a major cryptocurrency exchange.

For more information, please refer to the following links:

New Guidance on Ransomware, Crypto Derivatives; Crypto Tax Report Published

By: Teresa Goody Guillén

On Oct. 1, the U.S. Department of the Treasury issued two advisories intended to assist U.S. individuals and businesses in combating ransomware. The Office of Foreign Assets Control (OFAC) issued an advisory to highlight the sanctions risks associated with ransomware payments—a large portion of which are paid in bitcoin. The OFAC advisory reinforces that the U.S. government disfavors payments of ransom, but there is no general ban; payments to sanctioned individuals and/or entities can result in significant penalties; applications for licenses to make payments to sanctioned individuals and/or entities are considered with a presumption of denial; and cooperating with law enforcement is essential. The Financial Crimes Enforcement Network (FinCEN) issued the other advisory, which is intended to alert financial institutions to predominant trends, typologies, and potential “red flag” indicators of ransomware and associated money laundering activities.

In the UK, this week the Financial Conduct Authority (FCA) published final rules banning the sale, marketing and distribution to all retail consumers of any derivatives (i.e., contracts for difference, options and futures) and exchange traded notes that reference unregulated transferable cryptoassets by firms acting in, or from, the UK. According to the press release, “unregulated transferable cryptoassets are tokens that are not ‘specified investments’ or e-money, and can be traded, which includes well-known tokens such as Bitcoin, Ether, and Ripple.” The FCA cited several risk factors of these products, including the lack of a reliable basis for valuation; the prevalence of market abuse and crime; extreme volatility; and a lack of understanding and legitimate investment need on the part of retail consumers.

A Big Four accounting and consulting firm has released its Annual Global Crypto Tax Report 2020, which aims to evaluate and review the existing digital assets tax guidance globally and identify gaps or where guidance may need to be refined or supplemented. The report notes that the guidance issued thus far largely focuses on how to apply existing tax laws or policies to transactions, situations and structures that are unique to digital assets, instead of passing new legislation. The report includes an appendix that contains the latest global crypto tax developments, along with crypto tax information for 29 jurisdictions.

For more information, please refer to the following links:

DOJ Charges Allege Crypto Tax Evasion, Interpol Cites Crypto Privacy Threats

By: Jordan R. Silversmith

John McAfee, an English American computer programmer and businessman, was arrested this week on charges of tax evasion and failure to file tax returns. According to a press release, McAfee “evaded his tax liability by directing his income to be paid into bank accounts and cryptocurrency exchange accounts in the names of nominees.” The Department of Justice unsealed its indictment following McAfee’s arrest in Spain, where he faces extradition. This comes on the same day that the Securities and Exchange Commission (SEC) announced charges against McAfee for allegedly promoting several initial coin offerings (ICOs) without disclosing that ICO issuers were paying him to do so, in violation of federal securities laws. McAfee faces a maximum sentence of five years in prison on each count of tax evasion and a maximum sentence of one year in prison on each count of willful failure to file a tax return. He also faces a period of supervised release, restitution and fines.

A report released by Interpol this week named privacy wallets, privacy coins and other cryptocurrency items as “top threats” in its Internet Organized Crime Threat Assessment. According to the report, “privacy-enhanced wallet services using coinjoin concepts (for example, Wasabi and Samurai [sic] wallets) have emerged as a top threat in addition to well established centralized mixers.”

This week the Travel Rule Protocol (TRP), a 25-member working group favored by banks and traditional financial institutions, released the first version of its application programming interface (API). The group aims for the product to offer a clear and straightforward way for organizations to trade identification data about cryptocurrency transaction originators and beneficiaries, as required by recent guidance from the Financial Action Task Force.

For more information, please refer to the following links:

Crypto Study Published, Bahamas To Launch CBDC, New Ethereum Solutions Announced, ATS Settlement Process Approved, SEC Defeats Kik, Singapore Exchange Hacked

In this issue:

Cryptoasset Study Published, Bahamas Launches CBDC, Zcash Service Announced

Ethereum Enterprise Solutions Announced, US Air Force Expands Blockchain Initiative

SEC Approves Digital Asset Settlement Process, Crypto Brokerage Registers in Canada

Court Rules in Favor of SEC in Kik Case, SEC Settles with Two More ICO Issuers

CFTC and DOJ Bring Enforcement Actions Against Foreign Crypto Trading Platforms

Singapore Exchange Hacked, French Arrest 29 in Crypto Terrorist Financing Scheme

Cryptoasset Study Published, Bahamas Launches CBDC, Zcash Service Announced

By: Robert A. Musiala Jr.

The University of Cambridge has published its 3rd Global Cryptoasset Benchmarking Study. The report analyzes data from the cryptocurrency exchange, payments, custody and mining sectors. Among its many findings, the report notes that the cryptocurrency industry “has entered a growth stage despite the notable headwinds” and cites improved regulatory clarity as having assisted in this growth. The report highlights regulatory compliance, IT security and insurance as areas that pose “hurdles” to continued growth.

Late last week, the Central Bank of The Bahamas announced that beginning on Oct. 20 it will “gradually release a digital version of the Bahamian dollar nationally … through authorised financial institutions.” According to a press release, the Bahamian central bank digital currency (CBDC) will be named the “sand dollar” and the first phase of its rollout will involve “low value personal wallets … with more restricted transaction limits … regular personal accounts in line with … existing banking and financial services” and “business or enterprise accounts, subject to further KYC rigour and with higher limits.”

This week, major U.S. cryptocurrency exchange Gemini announced “shielded Zcash (ZEC) withdrawals.” According to a blog post, the new service will allow “confidential, encrypted withdrawals” of ZEC that give users “control of your privacy.” The blog post notes that “with the right controls in place and the proper education, regulators can get comfortable with privacy-enabling cryptos.”

For more information, please refer to the following links:

Ethereum Enterprise Solutions Announced, US Air Force Expands Blockchain Initiative

By: Jordan R. Silversmith

Earlier this week, a major Big Four professional services firm issued two press releases about new blockchain solutions under development. The first relates to a blockchain-based procurement solution on its proprietary platform that allows companies to run private, secure end-to-end procurement activities on the public Ethereum blockchain. The second announcement relates to the beta launch of a new “Explorer & Visualizer” that will allow users to track and analyze in-depth patterns and trends for data stored on a blockchain. According to the press release, the solution will make it possible for internal audit teams and forensic accountants to search for specific transactions, addresses and blocks to gather relevant information to support the management of legal, compliance and fraud risks, among others.

A recent report by Dutch academics discussing the use of blockchain technology to improve organic or fair trade food traceability under EU regulations found that organic food supply companies using blockchain to improve traceability face two key decisions: optimizing chain partner collaboration and choosing which data to capture in the blockchain. The authors noted that one practical implication of their findings is that blockchain is already being used successfully on a small scale to create whole-chain traceability of organic and fair trade food in Europe.

This week, a blockchain-based data management startup announced it had raised additional funding of $2.5 million from venture capital backers to further develop a distributed data management platform for the U.S. Air Force. The new capital pushes the company’s total seed funding to $6.5 million and also unlocks a $1.5 million defense contract pledged as matching funds through the Air Force’s Small Business Innovation Research (SBIR) program. A spokesman for the company said that they will use the funds to hire more engineers to work on its verifiable credential and distributed identity infrastructures.

For more information, please refer to the following links:

SEC Approves Digital Asset Settlement Process, Crypto Brokerage Registers in Canada

By: Robert A. Musiala Jr.

On Sept. 25, the U.S. Securities and Exchange Commission (SEC) issued a letter to the Financial Industry Regulatory Authority (FINRA) regarding the role of alternative trading systems (ATS) in the settlement of digital asset security trades. The SEC letter was in response to questions from FINRA about the application of the SEC and FINRA’s previously published Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities. According to the letter, “since the issuance of the Joint Staff Statement, several broker-dealers seeking to operate an ATS that trades digital asset securities” have expressed a preference for a certain process for settling ATS trades – termed the “Three-Step Process” – that was not specifically addressed by the Joint Staff Statement. The SEC letter describes the Three-Step Process for ATS trade settlement and confirms that SEC staff will not recommend enforcement action if “a broker-dealer operating an ATS that trades digital asset securities uses the Three-Step Process.”

According to a press release this week, Netcoins, a Canadian “cryptocurrency brokerage,” announced that it has “applied for registration from the British Columbia Securities Commission (BCSC) and the Canadian Securities Administrators’ (CSA) regulatory sandbox.” The press release notes that, if approved, Netcoins will become “the first regulated open-loop crypto asset trading platform in Canada.”

For more information, please refer to the following links:

Court Rules in Favor of SEC in Kik Case, SEC Settles with Two More ICO Issuers

By: Robert A. Musiala Jr.

This week the Court in the closely watched case SEC v. Kik Interactive Inc. ruled in favor of the U.S. Securities and Exchange Commission (SEC) on cross motions for summary judgment related to the SEC’s enforcement action against Kik. The Court agreed with the SEC and found that Kik’s $100 million initial coin offering (ICO) was an unregistered public offering of securities in violation of Section 5 of the Securities Act. The decision creates significant precedent on the application of the Howey test, which interprets the term “investment contract” under Section 5 of the Securities Act, to fundraising events commonly known in the blockchain industry as ICOs.

The SEC has recently taken action against two more ICO issuers. In a cease-and-desist order and related settlement, the SEC settled charges of fraud and securities laws violation against SoluTech, alleging its 2018 ICO, which “raised approximately $2.4 million from more than 100 investors, including U.S. residents” was a public sale of unregistered securities. Among other things, as part of the settlement, SoluTech agreed to remove its token, SCRL, from trading on digital asset trading platforms; destroy all SCRL in its custody; and take certain steps to demonstrate its compliance with the settlement terms. The owner of SoluTech agreed to a civil penalty of $25,000 and to a ban on participating in future offerings of digital assets.

In a similar action, the SEC imposed a cease-and-desist order and entered into a related settlement with Salt Blockchain Inc. related to its 2017 ICO, which raised approximately $47 million. The SEC found that the Salt Tokens sold in the ICO were securities and the ICO was an unregistered securities offering in violation of Section 5 of the Securities Act. Among other things, Salt Blockchain Inc. agreed to register its Salt Tokens as securities; initiate a process for refunding Salt Token purchasers, including reporting to the SEC; and pay a civil penalty of $250,000.

For more information, please refer to the following links:

CFTC and DOJ Bring Enforcement Actions Against Foreign Crypto Trading Platforms

By: Robert A. Musiala Jr.

This week, the Commodity Futures Trading Commission (CFTC) filed an enforcement action against a company registered in St. Vincent and the Grenadines alleging the company “offered or engaged in unlawful retail commodity transactions in ether, litecoin, bitcoin, gold, and silver.” According to a press release, the CFTC alleged the company violated the Commodities Exchange Act “by failing to conduct these transactions subject to the rules of a board of trade that had been designated or registered by the CFTC as a contract market” and acted as a futures commission merchant but “failed to register with the CFTC as required.”

In a similar action, the CFTC brought charges against a major cryptocurrency exchange platform registered in Seychelles for “operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering procedures.” According to a press release, the platform “received more than $11 billion in bitcoin deposits and made more than $1 billion in fees, while conducting significant aspects of its business from the U.S. and accepting orders and funds from U.S. customers.” The U.S. Department of Justice filed a related criminal action against the platform for “violating the Bank Secrecy Act and conspiring to violate the Bank Secrecy Act, by willfully failing to establish, implement, and maintain an adequate anti-money laundering program.”

For more information, please refer to the following links:

Singapore Exchange Hacked, French Arrest 29 in Crypto Terrorist Financing Scheme

By: Joanna F. Wasick

Late last week, a major Singapore-based cryptocurrency exchange reported large, unauthorized withdrawals of cryptocurrencies from certain exchange hot wallets to an unknown wallet beginning on Sept. 26. According to reports, the stolen funds, with an estimated value of more than $150 million, appear to be moving to decentralized exchanges. According to the exchange, the hack is being investigated by international law enforcement and the stolen money will be covered by an insurance fund.

Earlier this week, French police arrested 29 individuals for operating a cryptocurrency scheme to finance Islamist extremists in Syria. According to reports, the terrorist financing ring, reportedly active since 2019, would purchase cryptocurrency “coupons” in France and send those details by secure messaging to Syrian jihadists, who converted them into actual cryptocurrency, which was then sold for cash. Hundreds of thousands of euros are thought to have been supplied through the network, which reportedly benefited members of al-Qaida and the Islamic State group.

A leading blockchain analytics and forensics company recently issued its 2020 risk report on the know-your-customer (KYC) protocols of more than 800 virtual asset service providers (VASPs) in more than 80 countries. The report finds that, despite existing, cryptocurrency-related AML government regulations, 56 percent of VASPs have “weak or porous” KYC processes, allowing those VASPs to be used to facilitate money laundering. According to the report, the U.S., Singapore and the U.K. host the highest number of VASPs with poor KYC protocols – although the report acknowledges that this is largely due to those countries having a higher number of VASPs in general. On average, by country, the report gives its lowest VASP KYC marks to Russia and a number of other countries in Europe.

For more information, please refer to the following links:

OCC Clarifies Status of Stablecoins, US Agencies Procure Blockchain Applications, Solutions Launch on Hedera Hashgraph and VeChain, DOJ Targets Darknet Markets

In this issue:

OCC Clarifies Status of Stablecoins, Registration Statement Filed for Network Token

US Government Procures Blockchain Solutions, Blockchain Patent Study Published

Hedera Hashgraph Transactions Pass Ethereum, VeChain Supports Food Traceability

DOJ Announces Major Enforcement Action Against Darknet Markets

OCC Clarifies Status of Stablecoins, Registration Statement Filed for Network Token

By: Jordan R. Silversmith

The chief counsel for the Office of the Comptroller of the Currency (OCC) recently issued a letter clarifying the agency’s stance on the authority of national banks and federal savings associations (FSAs) to hold stablecoin “reserves” as a service to bank customers. The letter concluded that national banks and FSAs have legal authority to hold USD reserves on behalf of customers issuing stablecoins as long as the stablecoins are held in a hosted wallet. The OCC also noted in its letter that this interpretation only addresses stablecoins backed on a 1:1 basis by a single-fiat currency verified every day by the bank. The Securities and Exchange (SEC) Commission Strategic Hub for Innovation and Financial Technology Staff (FinHub) issued a statement in response to the OCC’s interpretation, clarifying that whether stablecoins will be considered securities for purposes of federal securities laws “is inherently a facts and circumstances determination.” FinHub also noted that any party seeking to structure and sell digital assets like stablecoins should reach out to them to ensure compliance with federal law.

A privacy-focused blockchain startup has filed a registration statement with the SEC related to its ENG tokens. According to the registration statement, “[f]rom June to September 11, 2017, the Company sold approximately 75 million ENG Tokens in exchange for Bitcoin or Ether, valued at approximately $42 million.” The registration statement notes that ENG tokens “currently serve as a payment tool in the Enigma Data Marketplace” and “serve as a way to incentivize and monetize data curation on the Enigma Network, both of which were live as of February 28, 2019.” The registration statement also notes that ENG tokens “should not be viewed as analogous to more traditional securities (i.e., capital stock, debt securities, warrants to purchase capital stock, etc.), as the ENG Tokens lack features of such securities.” When the registration statement goes into effect, the company would be subject to the Exchange Act, which requires filing an annual 10-K, quarterly 10-Q and current 8-K reports. The startup is reportedly one of the companies working on the “Secret Network,” an open source network protecting data for users of decentralized applications, or “secret apps.”

The INX cryptocurrency exchange has begun distributing tokens from its Ethereum-based initial public offering (IPO). Around 210 of the more than 500 registered and whitelisted investors in the company’s IPO have put money into the sale as of Sept. 18, three days after its first distribution transaction happened. In other news, a Nasdaq and SEC-registered fund manager is reportedly launching one of the first cryptocurrency ETFs in Bermuda. According to reports, the crypto-based ETF will be traded on the Bermuda stock exchange (BSX), will be denominated in U.S. dollars and will track an index being developed by Nasdaq.

For more information, please refer to the following links:

US Government Procures Blockchain Solutions, Blockchain Patent Study Published

By: Joanna F. Wasick

The Science and Technology Directorate (S&T), a division of the U.S. Department of Homeland Security (DHS), is offering $25,000 for designing the winning digital wallets to be used with DHS’s work in the blockchain and decentralized identity spaces. S&T states that the wallets must demonstrate ease of use and visual consistency and support interoperability, security and privacy. The search targets freelance designers, and the three finalists will receive $5,000, with an additional $10,000 going to the winner. Applications are being accepted through Oct. 15, and the winner will be named in December. In another government procurement, last week Xage Security, a blockchain-protected security platform company, announced it was awarded a contract by the Air Force Research Lab to evaluate and prepare blockchain-based end-to-end protection solutions across civilian and military assets for the U.S. Space Force, the space warfare service branch of the U.S. armed forces.

Earlier this week, a global intellectual property consulting company published results from a study on the current state of blockchain patents. According to the report, the number of such patents are “skyrocketing,” with more blockchain-related patents published in the first half of 2020 than in all of 2019 – a year that had already seen three times more blockchain patents published than in 2018. The report shows the United States has more blockchain patents than any other country. However, a major Chinese conglomerate published the most patents so far this year – between eight and 10 times as many as the next top applicant, an American computer and technology conglomerate. At this rate, the Chinese company is poised to own the most blockchain patent applications compared to any other entity.

For more information, please refer to the following links:

Hedera Hashgraph Transactions Pass Ethereum, VeChain Supports Food Traceability

By: Veronica Reynolds

After launching its mainnet in September 2019, Hedera Hashgraph, a decentralized public network, recently announced that it now processes 1.5 million daily transactions, almost double that of Ethereum, while its network fees remain relatively stable, according to reports. The Hedera network features multiple enterprise-grade applications hosted by companies across numerous industries, including healthcare, decentralized finance and supply chain management. One such company, Entrust, an Australian agricultural supply chain platform, recently announced its launch on Hedera. The company’s focus is on “securing supply chain growth and trust in the high-value wine and dairy manufacturing industries.”

In China, VeChain, an enterprise-friendly public blockchain, announced last week that it has joined the China Animal Health And Food Safety Alliance (CAFA), a Chinese government-backed organization with more than 130 members that are key players in the country’s food industry. VeChain plans to offer technical and infrastructure support to CAFA and hopes to support the organization’s strategy of “building a from-farm-to-table traceability system across the entire country.”

This week, one of the world’s leading meatpackers announced its plans to help combat deforestation in the Amazon through use of blockchain. The company cites fraud as a major issue that has arisen in the industry, whereby indirect supply-chain participants engage in “laundering” cattle from pastures that operate outside of and in conflict with protocols mandated by the industry. While participants who engage in this type of fraudulent sourcing are currently not being tracked, the hope is that blockchain can be leveraged to identify the parties who source cattle in an unlawful manner and to eradicate their participation from the supply chain.

For more information, please refer to the following links:

DOJ Announces Major Enforcement Action Against Darknet Markets

By: Robert A. Musiala Jr.

This week, the U.S. Department of Justice (DOJ) announced a major enforcement action related to “Operation DisrupTor, a coordinated international effort to disrupt opioid trafficking on the Darknet.” According to a DOJ press release, the operation “resulted in the arrest of 179 Darknet drug traffickers and fraudulent criminals who engaged in tens of thousands of sales of illicit goods and services across the United States and Europe.” As part of the action, U.S. and international law enforcement agencies seized numerous assets, including “over $6.5 million in both cash and virtual currencies.”

For more information, please refer to the following link:

International Law Enforcement Operation Targeting Opioid Traffickers on the Darknet Results in over 170 Arrests Worldwide and the Seizure of Weapons, Drugs and over $6.5 Million

U.S. Crypto Exchange Approved as Wyoming Bank; Firms Integrate Blockchain for Data Management; Multiple Enforcement Actions by Treasury, SEC, DOJ and CFTC

In this issue:

U.S. Crypto Exchange Approved as Wyoming Bank, MSB Regulations to be Simplified

Auto, Mining and Financial Firms Integrate Blockchain for Data Management

OFAC, DOJ, IRS and FATF Take Various Actions Against Cryptocurrency Crimes

SEC Charges ICO Issuers, DOJ and CFTC Charge Defendants in Crypto Fraud Schemes

DOJ, SEC and CFTC Charge Defendants Alleging Cryptocurrency Fraud Schemes

U.S. Crypto Exchange Approved as Wyoming Bank, MSB Regulations to be Simplified

By: Robert A. Musiala Jr.

This week Kraken, a major U.S. cryptocurrency exchange, announced that it has received approval from the State of Wyoming to form a Special Purpose Depository Institution (SPDI), Kraken Financial. According to a blog post, Kraken Financial “will be the first regulated, U.S. bank to provide comprehensive deposit-taking, custody and fiduciary services for digital assets … From paying bills and receiving salaries in cryptocurrency to incorporating digital assets into investment and trading portfolios, Kraken Financial will enable Kraken clients in the U.S. to bank seamlessly between digital assets and national currencies.”

Also this week, a nationwide organization of financial regulators from all 50 U.S. states announced an initiative, MSB Networked Supervision, that will allow “78 of the nation’s largest payments and cryptocurrency companies” to “undergo a single comprehensive exam to satisfy all state regulatory requirements” related to money transmission.

In a recent press release, the U.S. Commodity Futures Trading Commission (CFTC) “granted temporary no-action relief to Tassat Derivatives LLC, a CFTC-registered swap execution facility.” The CFTC action allows Tassat Derivatives LLC to list a bitcoin swap contract in the fourth quarter of 2020.

In international news, the Bank of Thailand recently announced the launch of a “new platform leveraging Blockchain Technology for Government Savings Bond issuance.” And in France, late last week the governor of the Banque de France indicated in a speech that European central banks should consider options for a potential central bank digital currency (CBDC).

For more information, please refer to the following links:

Auto, Mining and Financial Firms Integrate Blockchain for Data Management

By: Jordan R. Silversmith

A major French automobile manufacturer announced this week that it had developed a new blockchain project to track and certify the regulatory compliance of all vehicle components and sub-components used throughout the production chain. The project, based on the Hyperledger Fabric blockchain, creates a trusted network for parts manufacturers and vehicle manufacturers to share and track compliance information.

One of Brazil’s leading mining corporations has announced its first sale of iron ore using blockchain technology. The company reports that using blockchain for the transaction, which involved a cargo of 176,000 tons of material being shipped from Malaysia to China, “drastically reduced” the amount of paperwork and emails exchanged among the parties involved. According to the company, the letter of credit for the sale was issued through the blockchain platform Contour, and all stages of the transaction were consolidated in the Contour blockchain.

CULedger, a credit union service organization (CUSO), issued a press release this week announcing a new initiative relating to identity and fraud protection underpinned by the Hyperledger Indy blockchain. The initiative seeks to advance models for a permanent and portable digital identity that will improve trust in digital interactions with credit unions.

For more information, please refer to the following links:

OFAC, DOJ, IRS and FATF Take Various Actions Against Cryptocurrency Crimes

By: Robert A. Musiala Jr.

On Sept. 10, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) added four Russian individuals to OFAC’s Specially Designated Nationals (SDN) list of sanctioned persons. According to a press release, the individuals were added to the SDN list due to their involvement with attempts to influence the U.S. electoral process through “cultivating false and unsubstantiated narratives concerning U.S. officials” and “providing material support” to the Internet Research Agency, a “Russian troll factory.” In a similar action, on Sept. 16 OFAC sanctioned two more Russian nationals “for their involvement in a sophisticated phishing campaign” that targeted customers at two U.S. cryptocurrency exchanges and one foreign cryptocurrency exchange and “resulted in combined losses of at least $16.8 million.” As part of these actions, Treasury added multiple cryptocurrency addresses to the OFAC SDN list that were used to facilitate the activities of the sanctioned individuals.

A recent press release from the U.S. Department of Justice (DOJ) provided details on charges against a Russian national “for his alleged role in a conspiracy to use the stolen identities of real U.S. persons to open fraudulent accounts at banking and cryptocurrency exchanges.” The charges relate to “Project Lakhta,” which is described as “a Russia-based effort to engage in political and electoral interference operations.” The scheme allegedly involved the Internet Research Agency, which was mentioned in the OFAC press release described above.

According to another recent DOJ press release, the DOJ has brought charges against “five computer hackers, all of whom were residents and nationals of the People’s Republic of China (PRC), with computer intrusions affecting over 100 victim companies in the United States and abroad.” Among other things, the DOJ alleges that the hackers’ activities included ransomware, crypto-jacking, and “unauthorized use of victim computers to “mine” cryptocurrency.”

A recent solicitation by the U.S. Internal Revenue Service (IRS) is seeking to procure tools for tracing and attribution of privacy focused cryptocurrencies like Monero. According to reports, proposals accepted by the IRS will receive an initial payment of $500,000 and will be eligible for a further grant of $125,000.

In a final notable development, a recent report from the Financial Action Task Force (FATF) provides details on red flag indicators of money laundering and terrorist financing involving cryptocurrency transactions. The FATF report was published on Sept. 14.

For more information, please refer to the following links:

SEC Charges ICO Issuers, DOJ and CFTC Charge Defendants in Crypto Fraud Schemes

By: Marc D. Powers

The Securities and Exchange Commission (“SEC”) settled an enforcement action this week involving registration violations of the federal securities laws related to an initial coin offering (ICO). The SEC Order alleged that Unikrn Inc., an operator of an online eSports gaming and gambling platform based in Seattle, Washington, conducted an unregistered ICO of its UnikoinGold (UKG) token between June and October 2017. The Order found that Unikrn planned to use the ICO proceeds to add features on the gaming platform and to develop additional applications for the UKG tokens, and that Unikrn promised it would facilitate an increase in the value of UKG with a secondary trading market. Notably the ICO continued after the SEC’s issuance of The DAO Report on July 25, 2017, where it warned the public and companies against the issuance of tokens in ICOs or otherwise that might be subject to U.S. registration laws. Unikrn agreed to settle the charges by paying a $6.1 million penalty, which was alleged to be substantially all of its assets, to be distributed to investors through a Fair Fund under the securities laws. It also agreed to disable the UKG token and remove it from all digital asset trading platforms.

In a public statement, SEC Commissioner Hester Peirce disagreed that the Unikrn offering constituted a securities offering. Commissioner Peirce’s statement noted that no fraud was involved and that the enforcement action will “effectively force the company to cease operations.” In her statement, Commissioner Peirce promoted her previously published idea of a safe harbor that would have afforded a company like Unikrn a three-year regulatory window within which to further develop and refine its platform with ultimate benefits to token purchasers, token issuers and the Commission. In disagreeing with the SEC’s action against Unikrn, Commissioner Peirce said, ”[p]osterity will feel the cumulative loss to society of innovation forgone because of such actions.”

For more information, please refer to the following links:

DOJ, SEC and CFTC Charge Defendants Alleging Cryptocurrency Fraud Schemes

By: Marc D. Powers

In another series of civil, criminal and administrative actions by the SEC and DOJ, allegations of fraud, manipulation and registration violations were brought against film producer, Ryan Felton, in Georgia for two unregistered ICOs involving the tokens of FLiK and CoinSpark. Also charged with fraud is rapper and actor, Clifford Harris, Jr, known as T.I. or Tip, and three others who are alleged to have promoted the offerings. The complaint alleges that Felton promised to build a digital streaming platform for FLiK, and a digital-asset trading platform for CoinSpark, but instead misappropriated the funds, and reaped an additional $2.2 million from trading and manipulating the SPARK token.

In a DOJ action filed in Miami, a Washington, D.C. man, Jose Angel Aman, was criminally charged with running a Ponzi scheme from May 2014 through May 2019 where he solicited people in the U.S. and Canada to invest in diamond contracts purportedly valued at $25 million.  According to a DOJ press release, when the scheme was about to collapse, Aman set up a new business to perpetuate the fraud scheme by claiming to develop a cryptocurrency token backed by diamonds.

This week the Commodity Futures Trading Commission filed a complaint in Texas against four individuals for fraudulently soliciting investors to speculate in bitcoin price movements. The complaint alleges that from August 2016 through October 2017, the defendants raised almost $1 million from 27 customers by, among other things, falsely representing that their business, Global Trading Club, employed traders who had years of experience trading bitcoin “24 hours a day, 7 days a week.”

For more information, please refer to the following links:

CBDC Test Platform Launches, Crypto Adoption Report Published; Air Force Awards Contract to Study Blockchain Applications; Past Bitcoin Code Vulnerabilities Disclosed

In this issue:

CBDC Testing Platform Launches, Crypto Adoption and Bitcoin Payment Options Grow

Air Force Awards Contract to Study Blockchain, Retailer Reports Successful Invoice Pilot

Hackers Demand $4 Million Bitcoin Ransom, Past Bitcoin Code Vulnerabilities Disclosed

CBDC Testing Platform Launches, Crypto Adoption and Bitcoin Payment Options Grow

By: Robert A. Musiala Jr.

According to a recent press release, a major U.S. financial services firm has launched a “custom testing platform” that “allows central banks to evaluate use cases and test roll-out strategies” for central bank backed digital currencies (CBDCs). The press release cites research stating that “80 percent of central banks surveyed are engaging in some form of CBDCs work, and about 40 percent … have progressed from conceptual research to experimenting with concept and design.” The recently launched testing platform reportedly allows users to simulate a CBDC issuance, distribution and exchange ecosystem; demonstrate how a CBDC can be used to pay for goods and services; examine various technology designs; and evaluate technical build, security, design and operations.

This week blockchain analytics firm Chainalysis released an excerpt from its forthcoming “Chainalysis 2020 Geography of Cryptocurrency Report.” The excerpt discusses the firm’s Global Crypto Adoption Index, which seeks to quantify the differences in cryptocurrency adoption across the globe. Among other findings, the excerpt ranks the top 10 countries “where the most residents have moved the biggest share of their financial activity to cryptocurrency.” In order of one to 10, these are Ukraine, Russia, Venezuela, China, Kenya, the U.S., South Africa, Nigeria, Colombia and Vietnam.

According to recent reports, a major British online food delivery platform has enabled bitcoin payments for its French subsidiary using the services of a major U.S. bitcoin payment processor. Notably, if a bitcoin payment is canceled, “the customer will be refunded in Euros, with payment being sent to a customer’s traditional bank account.”

For more information, please refer to the following links:

Air Force Awards Contract to Study Blockchain, Retailer Reports Successful Invoice Pilot

By: Jordan R. Silversmith

A major U.S. defense contractor recently won a nearly $500,000 contract from the U.S. Air Force to study ways to implement blockchain technology within battle management systems. The contract calls for the contractor’s tech researchers to consider how distributed ledger technology (DLT) can help otherwise centralized Command and Control systems become less vulnerable to enemy attacks and better capable of ensuring the safety and success of Air Force pilots.

The Canadian division of an American retail giant that has deployed a blockchain solution to pay trucking companies has reported a 97 percent drop in invoice disputes with carriers. The corporation turned to DLT Labs, a Toronto-based startup, to deploy a customized version of its freight invoice and payment system. By the end of last month, the system had reportedly processed over 150,000 invoices, with fewer than 2 percent resulting in disputes. The system began as a pilot and now serves as the national standard for the Canadian division of the corporation’s carrier invoicing and payments. The company is also exploring new ways to leverage the platform to improve load visibility.

For more information, please refer to the following links:

Hackers Demand $4 Million Bitcoin Ransom, Past Bitcoin Code Vulnerabilities Disclosed

By: Joanna F. Wasick

Argentina’s national immigration agency recently suffered a Netwalker ransomware attack in which hackers demanded $4 million in bitcoin, and which resulted in a temporary shutdown of all border crossings. The Argentinian government learned of the attack on August 27, according to a criminal complaint published by its cybercrime agency, after receiving numerous calls from various checkpoints requesting technical support. The situation was evaluated, and it became clear that a ransomware virus had affected network systems. To prevent the further spread of the virus, the agency’s computer networks were shut down for about four hours, during which time the border was closed. In response to the $4 million ransom demand, government authorities said that they refused to negotiate with the hackers, and that they were not overly concerned with retrieving compromised data, which purportedly lacked any sensitive, personal or corporate information.

According to a paper published earlier this week by protocol engineer Braydon Fuller and core developer Javed Khan, a previously undisclosed denial-of-service vulnerability in the Bitcoin Core software was quietly patched about two years ago, and again earlier this year. The paper describes how the vulnerability was first detected by Fuller in June 2018, and was covertly patched the next day. On June 26, 2020, the vulnerability was reportedly found in other network areas by Khan, and it again was patched shortly thereafter. The vulnerability could have allowed attackers to steal funds, delay settlements or split the Bitcoin network into conflicting versions. It was given a severity level of 7.8 out of 10, which is deemed “high.”

For more information, please refer to the following links:

IRS Addresses Crypto Micropayments, Blockchain Shipping Platforms Expand, DOJ Ties North Korea Crypto Hacks to Chinese Traders, FBI Thwarts Plot Involving Bitcoin Bribe

A side view on a digital panel merging binary numbers with an integrated circuitIn This Issue:

IRS Addresses Taxing Crypto Received in Microtasks, Swiss Enable Crypto Payments

Blockchain Shipping Platforms TradeLens and ShipChain Expand Networks

North Korean Crypto Hacks Laundered by Chinese; Crypto Compliance Tools Launch

FBI Thwarts Plot Tied to Bitcoin Bribe, Ethereum Classic Suffers 51% Attack

IRS Addresses Taxing Crypto Received in Microtasks, Swiss Enable Crypto Payments

By: Robert A. Musiala Jr.

Late last week, the U.S. Internal Revenue Service (IRS) released a memorandum on the topic “Taxation of Virtual Currency Received in the Crowdsourcing Labor Market.” The memorandum discusses “the tax consequences for an individual who receives convertible virtual currency for performing microtasks through a crowdsourcing or similar platform.” According to the memorandum, examples of this type of activity include being paid in bitcoin or other convertible virtual currency in exchange for processing data, reviewing images, posting reviews for apps, reaching gaming milestones, completing quizzes or surveys, or registering accounts for online services. The memorandum concludes that in these circumstances, a taxpayer “has received consideration in exchange for performing a service, and the convertible virtual currency received is taxable as ordinary income.”

In Switzerland, the canton of Zug recently announced that beginning next February, citizens and companies based in Zug will be able to pay their taxes in bitcoin or ether, within certain limitations. In more news from Switzerland, a major Swiss health insurance provider has announced that it will begin allowing its customers to make payments in bitcoin and ether. Finally, according to reports, the first online sale has been made using a stablecoin pegged to the Swiss franc. The stablecoin, DCHF, is pegged 1:1 to the Swiss franc and is issued by a Swiss financial services firm. The DCHF was reportedly used to purchase a computing device from a major Swiss online retailer.

For more information, please refer to the following links:

Blockchain Shipping Platforms TradeLens and ShipChain Expand Networks

By: Joanna F. Wasick

Portbased, a subsidiary of the ports of Amsterdam and Rotterdam that manages digital port infrastructure and core processes in the ports, recently completed the first phase of connecting with the TradeLens blockchain-based platform, in an effort to create a connection between the Dutch ports and a larger global range of carriers, ports, terminals and overseas inland providers. The first phase of the project is focused on sending customs clearance messages and related data.

Earlier this week, ShipChain, a decentralized freight and logistics platform operating on the Ethereum network, announced the launch of its mainnet, a public delegated proof of stake sidechain of the Ethereum network. “Mainnet” is the term used to describe when a blockchain protocol is fully developed and deployed, meaning that transactions are being broadcasted, verified and recorded on the distributed ledger. According to ShipChain, its blockchain solution offers less congestion than the Ethereum mainnet, and otherwise reduces costs for its users by moving the cost of deployment and contract use away from end users, simplifying and improving the user’s experience. The company’s CEO stated, “Put simply, we can now fully deliver on blockchain’s promise to enable those in the business of trade and logistics to do business with anyone or anything in the world at any transaction size and without an intermediary.”

For more information, please refer to the following links:

North Korean Crypto Hacks Laundered by Chinese; Crypto Compliance Tools Launch

By: Teresa Goody Guillén

The Department of Justice (DOJ) lodged a civil forfeiture complaint that alleges North Korean actors hacked two cryptocurrency exchanges and laundered the funds through Chinese over-the-counter cryptocurrency traders. A DOJ official stated that the “action publicly exposes the ongoing connections between North Korea’s cyber-hacking program and a Chinese cryptocurrency money laundering network.” The complaint alleges the hackers stole over $272,000 of cryptocurrency from an exchange and converted the cryptocurrency into bitcoin, tether and other cryptocurrencies. The DOJ also alleges that a North Korea-associated hacker stole nearly $2.5 million in cryptocurrencies from a U.S. company and laundered it through over 100 accounts at another virtual currency exchange.

In South Korea, law enforcement has reportedly seized Bithumb, one of the country’s largest cryptocurrency exchanges by trading volume. The enforcement action is reportedly linked to an alleged fraud involving a $25 million token sale hosted on the exchange and a proposed acquisition by a Singapore platform.

The world’s largest cryptocurrency exchange and a privacy-centric blockchain developer have announced they are building a platform to facilitate private intelligence sharing, and will reportedly offer “real-time fraud analysis to fight cryptocurrency hacks, theft, and laundering.” The platform is anticipated to enable exchanges to share intelligence concerning transactions processed on the Bitcoin, Ethereum, Tron and Eos blockchains, with plans to support additional networks by the end of the year.

A new solution has been announced to drive compliance with the Financial Action Task Force’s Travel Rule. According to a press release, the solution, called Veriscope, allows Virtual Asset Service Providers (VASPs) to discover each other on a decentralized network, enabling them to comply with Know Your Customer and anti-money laundering regulations, while protecting user data and privacy.

A cryptocurrency intelligence company has reportedly developed tools for the U.S. Department of Homeland Security to track transactions of the privacy coin Monero. According to a press release, the new tool will provide law enforcement with assistance investigating Monero transactions and addresses.

For more information, please refer to the following links:

FBI Thwarts Plot Tied to Bitcoin Bribe, Ethereum Classic Suffers 51% Attack

By: Jordan R. Silversmith

According to reports, the FBI and a major electric vehicle company recently thwarted a $4 million ransomware attack on the company by a group of Russian nationals. On Aug. 22, the FBI arrested a 27-year-old Russian man in Los Angeles. The defendant allegedly tried to recruit an employee of the company to assist in the installation of a targeted ransomware attack on the company’s network in return for a bribe of $1 million. According to reports, the $1 million bribe was to be paid in bitcoin.

The Ethereum Classic blockchain endured another 51% attack last Sunday, its third such attack this month. While the first two attacks reorganized 3,693 and 4,000 blocks, respectively, this most recent attack reorganized over 7,000 blocks, equivalent to two days’ worth of mining. After the first attacks, some exchanges considered delisting the Ethereum Classic cryptocurrency, ETC. Now a leading crypto derivatives exchange is reconsidering its ETC perpetual futures contracts. According to reports, ETC value seems largely unaffected by the attacks, trading at less than 4% below its price during the second attack. In other hacking news, analysts investigating a recent hack that robbed an individual of 1,400 bitcoin via their Electrum wallet have reportedly linked the hacker to various transactions on a major global cryptocurrency exchange.

Wasabi Wallet recently announced it is updating the design of its CoinJoin transactions to permit bitcoin mixing with different values. Currently, Wasabi Wallet relies on the ZeroLink protocol and blind signatures for its CoinJoin mixing protocol to obscure a bitcoin’s transaction history. The design change, dubbed “WabiSabi,” would allow users to use CoinJoin with different values than their peers use. The protocol is still in the early stages of development, and the white paper, which was shown to the Bitcoin developer mailing list mid-June, is reportedly still under peer review.

For more information, please refer to the following links:

IPO Using ERC20 Tokens Approved, Report Details APAC Bitcoin Trading Data, Quorum Is Sold/Acquired, Blockchain Initiatives for Coffee and NASA, Crypto Crimes Continue

Abstract Digital network communication digital conceptIn this issue:

Blockchain Used in IPO and ATS, Bitcoin Fund Announced, APAC Trade Data Published

Quorum Acquisition Announced, Blockchain Initiatives Launch for Coffee and NASA

Crypto Crimes Continue in Ransomware, Fraud, Wash Trading and Tax Evasion Schemes

Blockchain Used in IPO and ATS, Bitcoin Fund Announced, APAC Trade Data Published

By: Robert A. Musiala Jr.

According to reports, this week a Gibraltar-based cryptocurrency exchange, INX Ltd., has announced that the U.S. Securities and Exchange Commission (SEC) has approved the company’s planned initial public offering (IPO) in which the company will offer its securities using blockchain. According to the registration statement, which has reportedly been deemed effective by the SEC, the company’s securities will be offered in the form of INX Tokens, “an ERC20 blockchain asset that is programmed using a smart contract that is compatible with the Ethereum blockchain.” The registration statement notes that “there is currently no public market for the INX Tokens and there is no plan to have our INX Token trade on a national securities exchange or any other exchange or trading platform, whether within or outside the United States.”

In related news, ASPD, a private “security token” that operates on the Tezos blockchain, has reportedly begun trading on the tZERO alternative trading system (ATS). Each ASPD represents fractional ownership in the St. Regis Aspen Resort, a five-star hotel located in Aspen, Colorado.

This week a major U.S. financial services provider reportedly took steps to launch “a new fund dedicated to bitcoin.” According to reports, while there is “little in the way of details” about the fund, “the minimum investment to join the pooled investment fund is $100,000.”

According to a recent blog post by blockchain analytics firm Chainalysis, “East Asia is the world’s largest cryptocurrency market, accounting for 31 percent of all cryptocurrency transacted in the last 12 months.” Some key findings reported in the blog post include the following:

  • Because China alone controls 65 percent of Bitcoin mining activity, the majority of all newly mined bitcoin originates in Asia-based addresses.
  • “The East Asia cryptocurrency market is dominated by professional traders, with roughly 90 percent of all volume transferred by East Asia in any given month attributed to professional-sized (above US$10,000 worth of cryptocurrency) transfers.”
  • “Tether is by far the most popular stablecoin in East Asia, making up 93 percent of all stablecoin value transferred by addresses in the region.”

For more information, please refer to the following links:

Quorum Acquisition Announced, Blockchain Initiatives Launch for Coffee and NASA

By: Veronica Reynolds

Leading blockchain software engineering firm ConsenSys announced this week its acquisition of Quorum, an opensource software and blockchain platform based on the Ethereum protocol, from a major U.S. bank. Quorum is designed for processing transactions within a permissioned network to address privacy and performance challenges. Reportedly, the acquisition by ConsenSys provides consumers with expanded features including digital asset functionality and document management. Moving forward, “all Enterprise Ethereum protocol technology at ConsenSys will fall under the ConsenSys Quorum brand, and developers will have the option to choose their underlying technology stack.”

An international coffee chain recently announced that consumers can now trace the origins of the coffee they buy from the conglomerate. The new product is built atop blockchain technology powered by a multinational technology giant. According to reports, a code on the bag of coffee will allow consumers to find out not only where the beans came from, but where they were roasted. Farmers will reportedly receive a reverse code that can be used to track produce.

Quadcopter Communications offered by the National Aeronautics and Space Administration (NASA) just got a “lift,” with two U.S. technology firms winning a bid to build the Space Communication Reconstruction and Mapping with Blockchain Ledgering, dubbed SCRAMBL. The system design seeks to use blockchain to spread data among networking satellites in order to increase the efficacy of their communication and “overall awareness.” It will provide a solution for times where one communication node cuts out, allowing the rest to “quickly and dynamically adapt.” According to the project proposal, SCRAMBL could prove particularly useful for quadcopter drone swarms, “where common operational awareness is needed throughout and communication is minimal due to environmental factors.”

For more information, please refer to the following links:

Crypto Crimes Continue in Ransomware, Fraud, Wash Trading and Tax Evasion Schemes

By: Joanna F. Wasick

Last week the former chief security officer of a popular ride-share company was charged with obstruction of justice and misprision of a felony in connection with the coverup of a major security breach in 2016. According to the complaint, after learning that personal identifying information of customers and drivers had been compromised, the defendant allegedly tried to conceal it from the government and the company’s new management team, and arranged to pay the hackers a ransom of $100,000 in bitcoin.

Also last week, the U.S. Commodity Futures Trading Commission (CFTC) filed papers seeking a default judgment against Benjamin Reynolds, a U.K. resident who allegedly stole 22,858 bitcoins through a Ponzi scheme. A complaint against Reynolds had been filed by the CFTC in June 2019, but he never answered or appeared in the case.

The Internal Revenue Service continues with its “soft letter” campaign to induce taxpayers to fix alleged discrepancies in their cryptocurrency-related tax filings. Following a flurry of warning letters earlier this year and last, new letters regarding unpaid or incorrectly filed cryptocurrency information were reportedly issued to multiple taxpayers in the middle of this month.

Police in South Korea recently raided and seized the country’s third-largest cryptocurrency exchange due to alleged fraud. According to a report from a local newspaper, the exchange’s owner and other managers were accused of “wash trading”—artificially inflating exchange volumes by using “ghost” accounts to make fake trades.

Distributed denial-of-service (DDoS) attacks continue against some of the world’s biggest financial service providers, including major money transfer service companies and, most recently, the New Zealand stock exchange. A recent report linked a slew of these attacks to the same hacker group, which demands ransom payments in bitcoin.

Earlier this week, Forbes reported that, according to the Federal Bureau of Investigation (FBI), a single ransomware variant, Ryuk, was used to steal $61 million in bitcoin since 2018. The article finds that a large portion of these bitcoin ransomware payments were “cashed out” at a  major global cryptocurrency exchange.

For more information, please refer to the following links:

Federal Reserve Addresses Digital Currencies, Financial Firms Announce Crypto Initiatives, Blockchain Solutions Announced, Enforcement Actions in US and Ukraine

In this issue:

Federal Reserve Addresses CBDCs Amid Crypto Initiatives by US and Foreign Firms

Blockchain Initiatives Announced in Supply Chain, Voting, Ports and Collaborations

Crypto Enforcement Announced by SEC, DOJ, and Texas, Alabama and Ukraine Agencies

Federal Reserve Addresses CBDCs Amid Crypto Initiatives by US and Foreign Firms

By: Robert A. Musiala Jr.

Late last week, Lael Brainard, a member of the Board of Governors of the U.S. Federal Reserve System, gave a speech in which she commented on the concept of central bank digital currencies (CBDCs). Among other comments, Governor Brainard said, “it is essential that the Federal Reserve remain on the frontier of research and policy development regarding CBDCs” and that the Federal Reserve is “continuing to assess the opportunities and challenges of, as well as the use cases for, a CBDC, as a complement to cash and other payments options.” On the same day, the Federal Reserve Bank of Boston announced “a multiyear collaboration with the Digital Currency Initiative at the Massachusetts Institute of Technology to perform technical research related to a central bank digital currency.” According to the press release, the collaboration will extend over two to three years and will involve, among other things, “testing a hypothetical central bank digital currency for wide-scale, general purpose use” and assessing “technology trade-offs by coding and testing various architectures” for CBDCs.

According to reports this week, a major U.S. bank has filed a patent application that would leverage artificial intelligence to analyze cryptocurrency price speculation data from various social media outlets to assist in generating cryptocurrency trading decisions. In another recent banking development, four major South Korean banks have reportedly announced their intent to begin offering services to “hold and manage cryptocurrencies for clients.” And in the U.K., London-based Archax recently announced that it has become the first company to receive the U.K. Financial Conduct Authority (FCA) “cryptoasset registration.” The FCA registration was introduced this year to comply with guidance from the Financial Action Task Force (FATF) applicable to Virtual Asset Service Providers (VASPs).

For more information, please refer to the following links:

Blockchain Initiatives Announced in Supply Chain, Voting, Ports and Collaborations

By: Robert A. Musiala Jr.

According to reports, a major U.S.-based aerospace and defense contractor and safety and productivity solution provider recently announced that it has deployed a blockchain solution for supply chain tracing to improve anti-counterfeiting and inventory management. The solution reportedly involves secure printed labels that attach to physical products and connect to a database underpinned by blockchain.

A recently published patent application by the U.S. Postal Service (USPS) describes “a voting system that can use the security of blockchain and the mail to provide a reliable voting system.” According to the patent application, “A registered voter receives a computer readable code in the mail and confirms identity and confirms correct ballot information in an election. The system separates voter identification and votes to ensure vote anonymity, and stores votes on a distributed ledger in a blockchain.”

According to a press release, the TradeLens blockchain platform for maritime shipping and port authorities has added a new member, YILPORT Holding Inc., a port and container terminal operator in Istanbul, Turkey. In other international news, the Cyprus member of a major global accounting and consulting firm network recently announced a partnership with VeChain, a blockchain technology firm with offices in the U.S., Europe and across the Asia-Pacific region. According to the press release, the collaboration is intended to assist in delivering blockchain-related services for the accounting and consulting firm’s clients.

For more information, please refer to the following links:

Crypto Enforcement Announced by SEC, DOJ, and Texas, Alabama and Ukraine Agencies

By: Jordan R. Silversmith

Last week the U.S. Securities and Exchange Commission (SEC) announced charges against a Virginia-based cryptocurrency platform and its CEO for “fraud and registration violations in connection with a $5 million initial coin offering of digital asset securities.” According to the SEC, from November 2017 through January 2018, Boon.Tech and its CEO sold “Boon Coins” to raise approximately $5 million in funding for the development of a new platform to connect employers seeking jobs with freelancers seeking work. The SEC’s order found that the coins were offered and sold as investment contracts and were consequently securities, an offering which Boon.Tech failed to register with the SEC. In a separate action by state regulators, this week securities regulators from Texas and Alabama issued an emergency cease and desist order to three business entities and an individual for their role in a cryptocurrency-based scam. The parties stand accused of falsely advertising that investment in their cryptocurrency debit cards could help customers avoid financial stress caused by COVID-19; one entity also guaranteed investment returns of over $10,000 a month.

This week the U.S. Department of Justice (DOJ) announced the indictments of five individuals in connection with their roles in an international cryptocurrency Ponzi scheme. According to the indictment, the individuals are alleged to have participated in a coordinated scheme to defraud investors to invest cash in a purported cryptocurrency mining and trading company in exchange for guaranteed profits. In another press release, DOJ announced the arrest of a man involved in a murder-for-hire scheme on the darknet. The individual, after pleading guilty to child-pornography charges, was later discovered to have sought his victim’s killing through a darknet murder-for-hire service. According to the press release, the defendant paid the murder-for-hire service approximately $20,000 in bitcoin before learning that the service was a scam. In a third press release, DOJ announced that a California woman had pleaded guilty of conspiring to using the darknet to sell heroin, methamphetamine, and cocaine in exchange for cryptocurrency.

In Europe, this week Ukrainian law enforcement announced the arrest of a cybercrime group alleged to have been responsible for laundering money for ransomware gangs. The group, alleged to have three members, reportedly ran twenty cryptocurrency exchanges and laundered more than $42 million for various criminal gangs.

For more information, please refer to the following links:

Market Developments in Stablecoins, Crypto Loans, Metals/Minerals Supply Chains and More; NY DFS Publishes Crypto “Greenlist”; DOJ Seizes Crypto Used in Terror Scheme

Modern research and information technologies in cyberspaceIn this issue:

Market Actors Focus on Stablecoins, Crypto-Backed Loans and Real Estate Transactions

Blockchain Announcements in Metals/Minerals, Shipping and Food Supply Chains

NY DFS Publishes Crypto Greenlist, European Guidance Addresses Accounting/Evidence

US DOJ Announces Massive Seizure of Cryptocurrency Related to Terrorist Financing

Market Actors Focus on Stablecoins, Crypto-Backed Loans and Real Estate Transactions

By: Veronica Reynolds

A partnership between BCB Group, a global digital asset financial services group, and Circle, a leading global financial technology firm, was announced last week. The partnership will allow BCB Group’s institutional clients to use the ERC20 stablecoin USD Coin “for payments, clearing and custody, helping to mitigate negative rate risk for its customers’ European exposure.” And a major U.S. cryptocurrency exchange announced a new product this week that will allow customers to borrow cash equal to up to 30 percent of their bitcoin holdings. The exchange reports that the solution is offered to provide liquidity to customers averse to relinquishing ownership of their cryptocurrency portfolios. The service is currently available via waitlist only, with plans to release the product this fall.

UpBit, a South Korean cryptocurrency exchange, is reportedly moving its headquarters to Thailand after massive regulatory overhauls in South Korea resulted in the exclusion of foreign customers from its platform. UpBit has obtained from the Thai Securities and Exchange Commission (SEC) four provisional licenses that would provide the company a lawful method by which to exchange and trade tokens and cryptocurrencies. Final approval by the Thai SEC is still pending.

In a press release this week, technology firm Bots Inc. announced that it has received a contract to develop a “blockchain-powered platform” that will enable “the digitization of real estate assets.” According to the press release, the solution will seek to “allow investors to buy property or mortgage notes anywhere in the world without complex legal paperwork and other common hassles.”

For more information, please refer to the following links:

Blockchain Announcements in Metals/Minerals, Shipping and Food Supply Chains

By: Robert A. Musiala Jr.

A major Japanese automotive manufacturer and a blockchain technology firm have announced an initiative to implement a blockchain solution for supply chain management and finance in precious metals and minerals transactions. According to a press release, the solution “will allow counterparties to distribute their data while maintaining granular privacy control over commercially sensitive information.”

A new port has joined the TradeLens platform. According to recent reports, “the Port of Vladivostok has become the first commercial port in Russia to join the Tradelens blockchain platform, joining of the world’s largest carriers and terminal operators to streamline trade with smart technology.”

In a recent proposed rule published in the Federal Register, the U.S. Department of Agriculture noted that it “expects electronic tracking systems, including digital ledger technology (DLT), will play an essential role in supply chain traceability.” According to the proposed rule, “DLT can provide secure, verifiable, transparent, and near-instantaneous tracking” and “protect confidential business information and trade secret information.”

For more information, please refer to the following links:

NY DFS Publishes Crypto Greenlist, European Guidance Addresses Accounting/Evidence

By: Joanna F. Wasick

Last week, the New York Department of Financial Services (DFS) issued a “Greenlist” of cryptocurrencies. Any entity licensed by DFS to conduct virtual currency business activity in New York may use the named coins for listing and/or custody services, provided the entity first informs DFS. Coins approved for listing include Binance USD (BUSD), Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Gemini Dollar (GUSD), Litecoin (LTC), Pax Gold (PAXG) and Paxos Standard (PAX).  The same coins are approved for custody, as are Ethereum Classic (ETC) and Ripple (XRP).

Earlier this week, a major U.S. cryptocurrency exchange said it was leaving Blockchain Association, a Washington, D.C.-based industry group it helped found, stating that recent decisions made by the association were at odds with the association’s mission and could potentially and irreparably harm its credibility. This departure comes shortly after a U.S. affiliate of a rival exchange company announced it was joining Blockchain Association.

The July 2020 discussion paper “Accounting for Crypto-Assets (Liabilities): Holder and Issuer Perspective,” issued by the European Financial Reporting Advisory Group (EFRAG) is now available. The paper provides possible approaches to address gaps in crypto-assets (liabilities) in the International Financial Reporting Standards. EFRAG requests comments on its findings, which are due by July 31, 2021. In other news from Europe, late last week the first article in the series “legal aspects of blockchain technology” was published as part of the KOSMoS research project, which is funded by the German Federal Ministry of Education and Research. The article addresses the use of blockchain as evidence in German courts.

For more information, please refer to the following links:

US DOJ Announces Massive Seizure of Cryptocurrency Related to Terrorist Financing

By: Robert A. Musiala Jr.

In a press release this week, the U.S. Department of Justice (DOJ) announced “the dismantling of three terrorist financing cyber-enabled campaigns, involving the al-Qassam Brigades, Hamas’s military wing, al-Qaeda, and Islamic State of Iraq and the Levant (ISIS).” According to the press release, the actions “represent the government’s largest-ever seizure of cryptocurrency in the terrorism context.”

The press release describes how the terrorist groups “used cryptocurrency and social media to garner attention and raise funds” and how “U.S. authorities seized millions of dollars, over 300 cryptocurrency accounts, four websites” and four social media pages related to the terrorist financing schemes. In one instance, U.S. law enforcement seized and covertly operated the al-Qassam Brigades websites such that when the websites received bitcoin from persons seeking to support the terrorist organization, “they instead donated the funds [to] bitcoin wallets controlled by the United States.” Among other details, the press release also noted that DOJ had unsealed criminal charges against individuals who supported the terrorist financing schemes by laundering money using an unlicensed money transmitting business.

For more information, please refer to the following link:

Crypto Payment Products Show Gains, Blockchain Initiatives Announced for COVID-19 Data, Regulators Consider Blockchain Issues, Ethereum Classic Suffers 51% Attack

A side view on a digital panel merging binary numbers with an integrated circuitIn this issue:

Announcements Provide Details on New Cryptocurrency Payment Products

Blockchain Use in COVID-19 Data, Food, Beverage Bottles and Wine Supply Chains

Regulators Consider Blockchain Issues in Tax, Banking, Securities and State Services

DOJ Targets Hackers and Darknet Vendors, Ethereum Classic Suffers “51% Attack”

Announcements Provide Details on New Cryptocurrency Payment Products

By: Robert A. Musiala Jr.

According to recent reports, a major U.S. mobile payments firm has announced that its Q2 revenue from selling bitcoin to customers through its Cash App application totaled $875 million – six times the corresponding amount in Q2 2019. In another recent announcement, a blog post noted that in only one year since its initial issuance, the ERC20 stablecoin, HUSD, now has more than $1.6 billion in tokens issued and is available in “nearly 20 markets.” HUSD is issued by a New York trust company in partnership with Huobi, a Singapore-based cryptocurrency exchange.

A San Francisco-based venture capital firm recently announced that it had “closed its second cryptonetwork and blockchain business-focused fund, with $110 million in commitments from undisclosed investors.” The firm noted that it would invest in “cryptocurrency tokens or equity.”

Binance, a major global cryptocurrency exchange, recently confirmed that it has begun shipping its new cryptocurrency debit card product to Europe. The Binance Card will allow users to spend cryptocurrencies by swiping the card through the readers of traditional point-of-sale systems. Another cryptocurrency exchange, Tauros, recently announced plans to offer a similar cryptocurrency debit card product in the Latin American market.

A startup hotel and accommodation booking platform recently announced that it has added 600,000 hotels and 1 million “holiday homes” to its travel platform, which allows payment to be made in a variety of cryptocurrencies. According to the company’s website, cryptocurrencies can be used to book more than 2.2 million hotels and accommodations worldwide through the company’s platform.

For more information, please refer to the following links

Blockchain Use in COVID-19 Data, Food, Beverage Bottles and Wine Supply Chains

By: Teresa Goody Guillén

Last year, a group of bottlers for a U.S.-based global beverage company adopted a blockchain platform based on Hyperledger Fabric, with the goal of reducing friction and improving transparency and efficiency in cross-organization supply chain transactions. According to reports, the bottler group is now seeking to expand the solution to enable “a low barrier network joining process” for other bottlers of the same products. The group will reportedly use the Baseline Protocol to lower barriers to entry for bottling suppliers, streamline internal bottler-suppliers’ provision of products to the bottling network and benefit external suppliers by providing an “integrated, private, distributed integration network.”

A Chinese tech giant recently announced its plan to create a blockchain-based wine traceability platform in collaboration with China’s biggest and oldest wine producer. The platform is reportedly designed to trace the winemaking and sales processes, including planting, brewing, distribution and management, and to issue a unique traceable certificate for each bottle of wine it produces. The solution will seek to help distributors and sales outlets identify counterfeit bottles and bottles that failed quality-control tests.

In spring 2020, a major global technology firm launched both a new blockchain network to help healthcare organizations find new suppliers more quickly and an open data hub that provides users with streamlined access to verifiable COVID-19-related information. The firm has now announced a new contest for developers to submit ideas for how blockchain can assist in addressing COVID-19-related issues.

In responding to issues presented by COVID-19, VeChain and Avery Dennison Intelligent Labels recently revealed a new food traceability tool at the 14th International Internet of Things Exhibition, held in Shenzhen, China. The solution reportedly uses built-in food traceability templates and customizable tools and can be implemented almost immediately in existing supply chains for food manufacturers, suppliers and retailers.

For more information, please refer to the following links

Regulators Consider Blockchain Issues in Tax, Banking, Securities and State Services

By: Joanna F. Wasick

Earlier this week, four legislators in the bipartisan Congressional Blockchain Caucus wrote to the IRS stating that the possible taxation of “staking” rewards as income could overstate taxpayers’ actual gains, hamper participation in important new technology and result in “a reporting and compliance nightmare” for taxpayers and the IRS alike. Staking allows cryptocurrency holders to earn income by participating in the transaction validation process on a blockchain network. When the cryptocurrency is staked, the underlying blockchain of that asset becomes more secure and efficient, and in exchange, the stakeholder is rewarded with more assets from the network. Alternatives to taxing staking rewards as income include taxing the rewards as interest payments or new property.

The Digital Asset Regulatory & Legal Alliance (DARLA), a group including fintech founders and senior legal counsel in the fintech space, wrote to the U.S. Office of the Comptroller of the Currency (OCC) this week, stating that better guidance is needed on fintech partnerships with national banks. The letter was in response to an advance notice of proposed rulemaking and request for comments issued by the OCC in May. Among other things, the DARLA letter emphasized that “providing banking services to fintech companies is not a high-risk endeavor” and that new regulations should be aimed at helping banks take advantage of technology innovation. Also, this week, a state-run commercial bank in Switzerland announced plans to launch cryptocurrency trading and deposit services through its banking subsidiary, making it the first Swiss state-backed lender offering such services.

The U.S. Securities and Exchange Commission (SEC) issued a solicitation request late last week, stating its intention to procure a tool to analyze smart contracts code within blockchains, including contract purpose, token type, purchase and sale restrictions, address whitelists and blacklists, modifications, and contract calls. The SEC reportedly will use the tool to support its efforts in monitoring risk, improving compliance and informing SEC policy with regard to cryptocurrency.

Last month, the California Blockchain Working Group issued a report to the California legislature analyzing the potential uses, risks and benefits of blockchain technology in state government and California businesses. The report identifies three recommended pilots involving the Department of Motor Vehicles, the Department of Food and Agriculture, and the Secretary of State’s State Archives Division.

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DOJ Targets Hackers and Darknet Vendors, Ethereum Classic Suffers “51% Attack”

By: Jordan R. Silversmith

Last week, the Department of Justice (DOJ) announced that three individuals had been charged in the Northern District of California for their alleged role in last month’s breach of several high-profile social media accounts, including those of former Vice President Joe Biden, Elon Musk and former President Barack Obama. The three individuals, including one juvenile, allegedly engineered the hack with a combination of technical breaches and social engineering, luring followers of approximately 130 accounts with a bitcoin scam promising an immediate doubling of their investment. The scam bitcoin account received more than 400 transfers worth more than $100,000 before it was shut down.

The DOJ also announced this week that a federal grand jury had indicted an American darknet vendor and a Costa Rican pharmacist for their illegal sale of opioids in exchange for bitcoin on the darknet and that a Missouri man pleaded guilty in federal court to attempting to purchase highly dangerous chemical weapons with bitcoin. Both cases can be traced to illicit marketing of illegal goods on the darknet, whose economy continues to flourish around the world. In Germany, dealers for the country’s largest online narcotics shop are scheduled to go to trial in Frankfurt soon for their role in trafficking massive amounts of illegal drugs on the darknet between September 2017 and February 2019. Prosecutors allege that the defendants gained more than 1 million euros ($1.2 million) from their trafficking scheme, which used bitcoin and other cryptocurrencies for payment.

This week, the Ethereum Classic blockchain suffered a “51%” attack. In this type of attack, the attacker gains control over more than 50% of network processing power, thereby allowing the attacker to alter the blockchain transaction history and “double-spend” the blockchain’s cryptocurrency. According to reports, Ethereum Classic has suffered from this type of attack twice in the past two years.

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