Crypto Regulation Update — August 2019
This update is brought to you by Bridge Protocol (BRDG) as part of a series on cryptocurrency regulations.
Bridge is a RegTech company specializing in identity services and compliance for Know-Your-Customer (KYC), Anti-Money-Laundering (AML) and identity verification on/off the blockchain.
Read last month’s update here.
United States
- The Internal Revenue Service (IRS) is sending out a new round of letters. In addition to the 10,000 letters the agency sent out last month, the new notice CP2000, specifically states how much is owed and/or discrepancy from what has been reported to them. The amount stated is what the agency believes the taxpayer owes. It is unclear how many CP2000 notices were sent out at this time.
2. Maryland Attorney General announces participation in “Operation Cryptosweep.” Maryland Attorney General Brian E. Frosh announced via a press release on Wednesday that his Securities Division is now participating in “Operation Cryptosweep.” Operation Cryptosweep is a task force started by the North American Securities Administrators Association (NASAA) in 2018, to “begin a coordinated series of investigations into ICOs and cryptocurrency-related investment products.”
According to the Maryland Attorney General’s office, since the beginning of the year, “35 enforcement actions against Initial Coin Offerings (ICOs) and cryptocurrency-related investment products have been completed by state and provincial securities regulators in the United States and Canada.”
3. The SEC files emergency lawsuit against Veritaseum (VERI) to stop spending millions from ICO proceeds. VERI raised $8 million in an ICO in 2017 and 2018. The SEC alleges that the offering made “material misrepresentations and omissions” about the VERI tokens, “knowingly misled” investors about prior business success and investor demand for VERI and also made manipulative trades to increase the token value in order to increase investor interest. Promises of “ready-to-ship” products and bigger than real demand for the token was promulgated by their founder, Reginald Milddleton, according to the SEC.
A federal judge has granted the temporary restraining order on business accounts, but not on the founders personal accounts.
4. US Department of Commerce hiring computer scientist hiring with blockchain experience. According to a job posting on USAJobs, an official government jobs portal, the department’s non-regulatory agency, the National Institute of Standards and Technology (NIST), plans to hire a person with experience in “setting up blockchain test beds and conducting research and analysis of blockchain technologies, crypto ledgers and crypto contracts.”
5. Amir Zaidi, director of the Division of Market Oversight (DMO) at the U.S. Commodity Futures Trading Commission (CFTC), is reportedly leaving the agency. Amir is reportedly responsible for heading the bitcoin futures regulation.
6. SEC v. Kik — Kik files aggressive answer in response SEC lawsuit. Kik states that the SEC took things out of context and cherry-picked facts to fit their narrative. Kik has continued to promise to fight the action and using their “Defend Crypto Fund,” which has raised several million dollars to continue doing so.
Kik’s answer is 117 pages and begins with a three-page introduction, which is fairly unusual for an answer in federal court litigation. You sometimes see plaintiffs do this but rarely defendants. The response does not hold back, accusing the SEC of twisting facts to create a “highly selective and misleading depiction of the record.”
7. Senate panel continues to question financial inclusion and calls for more regulatory clarity. Experts Jeremy Allaire (CEO of crypto exchange-operator Circle), Mehrsa Baradaran (University of California Irvine law professor) and Rebecca Nelson (Congressional Research Service international trade and finance specialist) testified before the committee on regulatory framework for both the crypto space and blockchain technology.
Bardaran stated that the problem of the “unbanked” is not a technology problem, its policy. The conversation kept mentioning Libra, Facebook’s cryptocurrency initiative. Concerns on how Facebook could meet global data privacy and other regulatory concerns with their planned system.
Allaire pointed to the the Financial Action Task Force (FATF) guidelines as a good starting point of getting the world on the same page. The global regulatory body issued guidelines for virtual asset providers earlier this year. Those guidelines were accepted by multiple sovereign nations and coalitions, including the G20, meaning most jurisdictions will comply with FATF guidelines.
WorldWide
- Crypto laws around Europe are tightening up and in-force soon. The introduction of Anti-Money-Laundering Directive (AMLD5) and new rules are set to sweep in Europe over the next 4 months. These rules will look at cryptocurrency exchanges closer in line with banks. The deadline to comply is set at January 2020.
Smaller exchanges will have to play compliance catch-up, critics say the cost will be too much to bear while staying in business. Places like Malta, which once were thought as safe havens for crypto businesses and exchanges, will be affected by this as well and need to comply.
2. Governments have joined forces to develop a system to fight money laundering in cryptocurrencies. The Group of 7 aim to build a system that shares personal data on individuals who conduct cryptocurrency transactions and would be managed by the Financial Action Task Force (FATF). The Group of Twenty (G20) also officially welcomed the guidelines. Nikkei Report here.
3. Robinhood gets the thumbs-up from the United Kingdom Financial Conduct Authority (FCA) to operate. Robinhood said that its subsidiary, Robinhood International, Ltd., will operate as a broker in the U.K., following the approval. “This authorization will enable us to bring our investing platform to customers in the U.K., and is a critical step to achieve our mission of democratizing finance for all.”
4. European Central Bank wants to increase monitoring of cryptocurrencies with on-chain data. In a recently released report, the European Central Bank (ECB) outlined its plan to devise a monitoring framework of the cryptocurrency market, using both on-chain data and metadata related to off-chain transactions.
5. Chinese police now investigating EtherDelta. “EtherDelta is involved in a major scam in China, police officially take legal action against it,” tweeted Dovey Wan, a partner at cryptocurrency investment fund Primitive Ventures, on Wednesday.
Back in late 2018, the SEC charged Zachary Coburn for operating an unregistered securities exchange. Coburn settled and neither admitted or denied the accusations. Coburn said he sold EtherDelta to a group of Chinese buyers, who later issued a token called EDT and it turned out to be an “exit scam.”
6. Tron Founder, Justin Sun denies accusations of money laundering and others. Tron founder and CEO Justin Sun denied illegal fundraising, porn transaction facilitation, gambling and money laundering accusations in a post on Chinese social media platform Weibo published on July 2.
He recently won a lot of attention by winning a bid of $4.6m for a Warren Buffett charity dinner, which he has now postponed, claiming for “medical conditions.”
