To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses by developing new offerings based on emerging technologies and integrating these technologies into existing product and service offerings.
This is our ninth monthly bulletin for 2020, aiming to help companies identify important and significant legal developments governing the use and acceptance of blockchain technology, smart contracts and digital assets.
While the use cases for blockchain technology are vast, from copyright protection to voting, most of the current adoption is in the financial services section and the focus of this bulletin will be primarily on the use of blockchain and or smart contracts in that sector. With respect to digital assets, we have organized our approach to this topic by discussing it in terms of traditional asset type or function (although the types and functions may overlap), that is, digital assets as:
- Virtual currencies
- Deposits, accounts, intangibles
- Negotiable instruments
- Electronic chattel paper
- Digitized assets
Digital assets can themselves be assets or instead can reflect the ownership of an underlying asset. For example, electronic records that are the equivalents of negotiable instruments and electronic chattel paper would be digital assets, as would an electronic recording of a security interest in the underlying asset, such as recording title to real or personal property and the use of tokens to represent revenue streams from otherwise illiquid assets such as patents and commercial real estate (sometimes referred to as a “tokenized” or digitized asset).
In addition to reporting on the law and regulation governing blockchain, smart contracts and digital assets, this bulletin will discuss the legal developments supporting the infrastructure and ecosystems that enable the use and acceptance of these new technologies.
Each issue will feature in-depth insight on a timely and important current topic. In this issue, we review the impact of the recent case Crypto Asset Fund, LLC, et al. vs. Opskins Group Inc., et al. assessing the use of unilaterally modifiable arbitration provisions in contracts to purchase tokens in initial coin offerings.
For further information on the status of Blockchain regulation, see “Blockchain Regulation: Speedbumps, Roadblocks and Superhighways,” a September 3 CoinTelegraph article by our partners Margo Tank and Michael Fluhr.
To build on our recent increasing recognition in the fintech and blockchain space, the DLA IPT and Real Estate teams joined up to contribute to the inaugural edition of the Chambers and Partners Blockchain Guide 2020. Led by partner Scott Thiel and supported by Jonathan Gill and Kenny Tam, the team wrote the Hong Kong and China “Law and Practice” sections of the guide detailing the blockchain market and key legal and regulatory issues to note in each jurisdiction.
For related information regarding digital transformation, please see our monthly bulletin, eSignature and ePayment News and Trends.
WAX tokens: amendments to arbitration provisions still govern disputes
The United States District Court for the Central District of California has issued a stay of proceedings pending arbitration in the case of Crypto Asset Fund, LLC et al vs. Opskins Group Inc., et al. The case revolved around the defendants’ sale of Worldwide Asset eXchange (WAX) tokens in an initial coin offering (the ICO) in 2017. Read more.
- USPS applies for Blockchain-based patent for secure voting. On August 13, a patent filed by the US Postal Service was published. The patent, entitled “Secure Voting System,” enables confirmation of voter identity with respect to mail-in votes, separates voter identification and votes assure anonymity, and uses “the security of blockchain” to store the votes on a distributed ledger in a blockchain.
- USAF awards contract to study the use of DLT in battle management systems. On September 1, the US Air Force Research Laboratory awarded Raytheon, an aerospace defense contractor, a $495,039 contract titled “Characterizing the applicability and relevance of DLT (Distributed Ledger Technology) in Air C2 (CARDIAC)” which will consider how DLT can benefit USAF commanders’ command and control systems and operations and make such systems less vulnerable to enemy attacks.
- IRS continues to send cryptocurrency tax warning letters. Despite the June 29 criticism of the National Taxpayer Advocate in its report to Congress, reported in our August issue, the Internal Revenue Service (IRS) reportedly has resumed sending send “soft letters” to virtual currency taxpayers. The letters (IRS Forms 6173, 6174 and 6174A) request taxpayers fix alleged discrepancies in their virtual currency-related tax filings.
- IRS addresses taxation of cryptocurrency received in crowdsourcing labor market. In a chief counsel memorandum released on August 28, the IRS provided that cryptocurrency paid to individuals or entities performing “microtasks” conducted on crowdsourcing platforms constitutes taxable income, since such payments are” consideration in exchange for performing a service.” This guidance came in response to a question posed by the IRS’ small business/self-employed division requesting clarification on whether cryptocurrencies earned for performing microtasks through crowdsourcing platforms are taxable income. Many digital platforms now enable individuals or entities to crowdsource jobs. Certain crowdsourcing platforms specifically facilitate the practice of microtasking, which breaks down larger tasks into smaller, menial tasks (although still demanding human involvement) and distributing the tasks via online crowdwork platforms. Examples of microtasks for which one might be paid include: (i) processing data or reviewing images; (ii) downloading a particular app from an app store and leaving a positive review including a comment; (iii) downloading games and reaching certain milestones; (iv) completing online quizzes and surveys; or (v) registering accounts with various online services. The performance of a microtasks may provide the provider with “rewards” in the form of convertible cryptocurrency. The value of convertible cryptocurrency paid in exchange for a single microtask often is a small amount that may be less than US$1. The memorandum’s conclusion is not surprising, at least from the tax law perspective, as it iterates a basic tax principle that “except as otherwise provided by law, gross income means all income from whatever source derived, including compensation for services.” The memorandum concludes that a “taxpayer who performs a task through a crowdsourcing platform, including a microtask, has performed a service for the party that requested the task with the expectation that he or she will receive compensation.” Thus, if the taxpayer receives convertible cryptocurrency for performing the task, regardless of the value and the manner in which it is received, then the taxpayer has been compensated with property.
- IRS offers bounty to crack privacy coins. On September 4, the IRS Criminal Investigation division (IRS-CI) issued a proposal offering up to $625,000 for submissions of working prototype tools for tracing and attribution of privacy cryptocurrency coins such as Monero or Lightning Layer 2 transactions. Submissions for phase 1 proofs of concept were due by September 16.
- OCC releases interpretation on bank authority to hold stablecoin reserves. On September 21, the OCC released Interpretive Letter #1172, “OCC Chief Counsel’s Interpretation on National Bank and Federal Savings Association Authority to Hold Stablecoin Reserves.” The Interpretive Letter describes the OCC’s conclusion that banks have the authority to provide the service of holding fiat currency deposits which serve as 1:1 reserves for certain stablecoins where there is a hosted wallet. The bank must verify on a daily basis that the reserve account balance is always equal to or greater than the number of the issuer’s outstanding stablecoins. The OCC reserved on addressing the authority of banks to support stablecoin transactions involving un-hosted wallets. That same day, the SEC released an SEC FinHub Staff Statement on OCC Interpretation warning parties that stablecoins may qualify as a security under the federal securities law, and that determination requires “a careful analysis of the nature of the instrument, including the rights it purports to convey, and how it is offered and sold.”
- FinCEN provides clarity on BSA/AML enforcement. On August 18, the Financial Crimes Enforcement Network (FinCEN) issued a Statement on Enforcement of Bank Secrecy Act which describes the factors used by FinCEN in its enforcement approach to the BSA, including the adequacy of an anti-money laundering program. FinCEN’s announcement asserts that the agency’s aims are to provide clarity and transparency in its approach when contemplating compliance or enforcement actions.
- Senate Banking Committee seeks report from OCC on digital banking ANPR. In a September 1 letter to Brian Brooks, Acting Comptroller of the Office of the Comptroller of the Currency (OCC), Senator Mike Crapo, Chair of the Senate Committee on Banking, Housing, and Urban Affairs, requested that the OCC provide the OCC’s findings and intended next steps in light of responses it received to its Advanced Notice of Proposed Rulemaking (ANPR) on digital technology and innovation. The letter also suggested that the OCC issue an interpretive letter clarifying national banks’ and federal savings associations’ authority for cryptocurrency payments. For information on the OCC ANPR, see our June issue.
- DHS S&T launches new prize competition for digital wallet UIs. On September 8, the Department of Homeland Security (DHS) Science and Technology Directorate (S&T) announced the launch of a design competition for better and trusted user interfaces (UIs) for digital wallets. The competition offers a total prize of $25,000. Design proposals must be submitted by October 15.
- CFTC issues no-action letter to Tassat. On September 15, the Commodity Futures Trading Commission (CFTC) announced it “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.
- CFTC approves LedgerX amended bitcoin futures proposal. On September 2, the CFTC announced that it had approved the Amended Order of Registration for LedgerX, LLC, to clear additional products as a derivatives clearing organization under the Commodity Exchange Act to provide clearing services for fully collateralized bitcoin futures and options in futures. See our August 2019 issue for more information.
- CSBS announces state-initiated program for a single regulatory exam for payment firms. On September 15, the Conference of State Bank Supervisors announced the rollout by state regulators of a program enabling nationwide payment firms to undergo a single, comprehensive exam to satisfy all state regulatory requirements. The single exam will be led by one state overseeing a group of examiners sourced from across the country. Known as MSB Networked Supervision, the initiative will apply to 78 of the nation’s largest payments and cryptocurrency companies that combined move more than $1 trillion a year in customer funds.
- Kraken becomes first crypto bank. On September 16, Kraken announced that it received approval from the Wyoming Banking Board of its charter application for a Special Purpose Depository Institution, Kraken Financial. Kraken will offer deposit-taking, custody and fiduciary services for digital assets, and allow banking between digital assets and national currencies.
- Tokensoft supports two new SEC registered offerings.
- In July, Arca ArCoin launched the first SEC-registered closed end fund to issue digital securities using Tokensoft’s Transfer Agent and the new open source ERC-1404 token standard. The SEC granted a notice of effectiveness to ArCoin, a cryptographically-traded US Treasury Fund pursued by Arca labs and designed by Tokensoft as Arca’s tokenization specialist. The fund is reportedly the first Ethereum blockchain-native investment fund registered under the Investment Company Act of 1904.
- On August 24, INX Ltd. announced the SEC declared as effective its registration statement on Form F-1 filed in connection with the IPO of INX Security Tokens. On August 25, INX Ltd. launched the first foreign IPO (F-1 Offering) in the US using the Tokensoft platform, seeking $117 million.
- US files suit to forfeit 280 cryptocurrency accounts tied to hacks of exchanges. On August 27, the Department of Justice (DOJ) announced the US had filed a civil forfeiture complaint detailing two hacks of virtual currency exchanges by North Korean actors. These actors stole millions of dollars’ worth of cryptocurrency and ultimately laundered the funds through Chinese over-the-counter (OTC) cryptocurrency traders. The complaint follows related criminal and civil actions announced in March 2020 pertaining to the theft of $250 million in cryptocurrency through other exchange hacks by North Korean actors.
- US indicts Apt41 actors in connection with computer intrusions. On September 16 the US DOJ announced indictments charging five computer hackers, residents and nationals of the People’s Republic of China, with computer intrusions affecting over 100 victim companies, which facilitated ransomware and cryptojacking schemes to use the victim’s computers to mine cryptocurrency. In August, the DOJ also indicted two Malaysian businessmen for conspiring with the Chinese hackers, and on September 14, those individuals were arrested in Sitiawan. Seizure warrants have also been issued.
- US seeks forfeiture of accounts related to bank fraud and unlicensed money transmission allegations. On August 19, the US filed a Government’s Forfeiture Bill of Particulars in the US District Court for the Southern District of New York in the case against Reginald Fowler and Ravid Yosef, seeking forfeiture of all funds held in 56 bank accounts in the name of Fowler or associated entities. As previously reported in our May issue, prosecutors alleged that these funds are the proceeds of a real estate investment scheme and the result of an unlicensed money transmitting operation related to virtual currency exchanges. Fowler, Tether and Bitfinex subsequently filed motions to dismiss the litigation on September 3, arguing that the plaintiffs can’t prove any unbacked stablecoins actually entered the market. Additionally, the New York Attorney General filed on September 8 a motion requiring Tether and Bitfinex to turn over documents related to a $900 million line of credit between the entities, as the parties failed to resolve the discovery dispute after Bitfinex and Tether lost their appeal on the court’s ruling compelling disclosure. See our July issue for information on the appeal ruling and our October issue for information regarding the litigation complaint.
- OFAC sanctions two Russian nationals for virtual currency theft. On September 16, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced it sanctioned Daniel Potekhin and Dmitrii Karasavidi for their involvement in a sophisticated phishing campaign that targeted customers of two US and one foreign virtual asset service providers which resulted in combined losses of at least $16.8 million.
- DOJ charges Russian national with wire fraud in Project Lakhta. On September 10, the DOJ announced the filing of a criminal complaint against Artem Mikhaylovich Lifshits for his role in a conspiracy to use the stolen identities of real US persons to open fraudulent accounts at banking and cryptocurrency exchanges. The DOJ asserts that Lifshits serves as a manager in “Project Lakhta, a Russia-based effort to engage in political and electoral interference operations.”
- CFTC charges individuals with fraudulent digital asset scheme. On September 14, the Commodity Futures Trading Commission (CFTC) announced it filed a complaint in the US District Court for the Southern District of Texas against three Texas residents and one Florida resident for fraudulently soliciting funds from customers to speculate in Bitcoin price movements. The complaint alleges that the defendants falsely represented to actual and potential customers that their business, named Global Trading Club (GTC), employed “master traders” who had years of experience trading “crypto currency” and used “cutting edge trading robots” to trade Bitcoin for customers “24 hours a day, 7 days a week.” The complaint further alleges that at least 27 individual customers deposited at least $989,000 with one or more representatives of GTC, and seeks disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction.
- CFTC charges Maryland residents with $28 million Ponzi scheme. On August 28, the CFTC announced it filed a complaint in the US District Court for the District of Maryland charging Dennis Jali, a South African citizen who previously resided in Maryland, with orchestrating a $28 million Ponzi scheme. The complaint also charges two other Maryland residents with fraudulently soliciting funds from members of the public for the “1st Million Pool” through and on behalf of 1st Million LLC, Smart Partners LLC, and Access to Assets LLC. The complaint alleges that over 1000 participants contributed at least $28 million to the 1st Million Pool, and the defendants misappropriated at least $7 million of such funds to pay for expensive cars, personal travel, and living and business expenses. The CFTC seeks full restitution to defrauded pool participants, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and a permanent injunction against violations of the federal commodities laws.
- SEC charges Maryland companies and their principals for Ponzi Scheme. On August 28, the Securities and Exchange Commission (SEC) announced that it also charged Dennis Jali, two other Maryland residents and their companies, 1st Million LLC and The Smart Partners LLC, for a scheme which allegedly defrauded approximately 1,200 investors of more than $27 million. This complaint is based on the same facts as the complaint filed by the CFTC and discussed immediately above, but charges the defendants with violating the antifraud provisions of the federal securities laws and seeks permanent injunctive relief, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties. Jali and the two Maryland residents are also facing criminal charges of conspiracy, wire fraud, securities fraud and money laundering filed by the US Attorney’s Office for the District of Maryland based on the facts of the above-mentioned CFTC and SEC complaints. The criminal indictment seeks jail time as well as a money judgment of at least $28,021,868.01, including $2,481,994.57 seized from 10 bank accounts associated with the defendants, and a 2016 Porsche SUV.
- SEC charges film producer, rapper and others in fraudulent ICOs. On September 11, the SEC announced charges against five Atlanta-based individuals, including film producer Ryan Felton, rapper and actor Clifford Harris, Jr., known as T.I. or Tip, and three others who each promoted one of Felton’s two unregistered and fraudulent initial coin offerings (ICOs). The SEC also charged FLiK and CoinSpark, the two companies controlled by Felton that conducted the ICOs. The SEC’s complaint alleges that Felton promised to build a digital streaming platform for FLiK, and a digital-asset trading platform for CoinSpark. Instead, Felton allegedly misappropriated the funds raised in the ICOs, secretly transferring FLiK tokens to himself and selling them into the market, reaping an additional $2.2 million in profits. Felton also allegedly engaged in manipulative trading to inflate the price of SPARK tokens. Aside from Felton, all of the individuals have agreed to settlements to resolve the charges against them. Felton also faces criminal charges filed by the US Attorney’s Office for the Northern District of Georgia based on the facts of the above-mentioned SEC complaint. The government is seeking to forfeit the more than $2 million in proceeds of his schemes and previously filed a civil forfeiture action, which is stayed pending the resolution of the criminal prosecution.
- SEC settles charges against unregistered ICO issuer. On September 15, the SEC announced charges against Unikrn Inc., an operator of an online eSports gaming and gambling platform headquartered in Seattle, Washington, for conducting an unregistered ICO of digital asset securities. According to the SEC’s order, between June and October 2017, Unikrn raised approximately $31 million through its offering of the UnikoinGold (UKG) token. The order finds that Unikrn planned to use the offering proceeds to make more features available on the gaming platform and to develop additional applications for the UKG tokens. Unikrn promised investors that it would facilitate a secondary trading market for the tokens and that its efforts to increase the usages for the UKG token would increase demand for and in turn, the value of, the tokens. The order finds that Unikrn offered and sold UKG as investment contracts, which constituted securities, yet failed to register the offering or qualify for an exemption. Unikrn agreed to settle the charges by paying a $6.1 million penalty, substantially all of the company’s assets, to be distributed to investors through a Fair Fund. Also on September 11, SEC Commissioner Hester M. Peirce issued a Statement on SEC Settlement Charging Token Issuer with Violation of Registration Provisions of the Securities Act of 1933, discussing the implications of the SEC’s charge against Unikrn of violating only Section 5 of the Securities Act for failing to register Unikrn’s ICO, which was allegedly conducted in a manner that did not qualify for an exemption.
- California DBO opines on cryptocurrency escrow services under the MTA. On July 28, the California Department of Business Oversight (DBO) issued a letter opining that certain cryptocurrency escrow services do not require a license from the DBO under the California Money Transmission Act (MTA). The letter acknowledged the ongoing debate as to whether cryptocurrencies are a “viable form of money” or a “speculative non-money asset”, and asserts that the DBO has not concluded that cryptocurrency is a form of money so as to trigger the MTA. The DBO did caution that certain of such escrow activities may trigger requirement for licensure under the California Escrow Law.
- DOJ charges DC man in $25 million diamond Ponzi scheme. On September 11, the UA Attorney’s Office for the Southern District of Florida announced it charged Jose Angel Aman with wire fraud for allegedly operating a fraudulent diamond investment scheme. According to the charging document, Aman solicited investors in diamond contracts, but when that scheme was failing, Aman set up a new business, Argyle Coin, LLC, allegedly to develop a cryptocurrency token backed by diamonds. Aman solicited investors for Argyle, promising high rates of return with no risk. Aman collected over $25 million from hundreds of investors.
- Operators of global cryptocurrency Ponzi scheme and attorney charged. On August 18, the US Attorney’s Office for the Southern District of New York announced the unsealing of an indictment charging Pablo Renato Rodriguez and four other individuals for their roles in an internationally coordinated fraud and money laundering ring involved in defrauding individuals through investments in AirBit Club, a purported multi-level marketing cryptocurrency mining and trading company. The indictment alleges that the defendants solicited cash investors and promised that the investments would generate returns on cryptocurrency mining and trading. The defendants sought to conceal the AirBit Club scheme, as well as their respective control of its proceeds in excess of $20 million by using third-party cryptocurrency brokers, and by laundering the proceeds through several domestic and foreign bank accounts, including an attorney trust account managed by one of the defendants as counsel. Charges include conspiracy to commit wire fraud, conspiracy to commit bank fraud and conspiracy to commit money laundering. The wire fraud conspiracy and money laundering conspiracy charges each carry a maximum term of 20 years in prison, and the bank fraud conspiracy charge carries a maximum term of 30 years in prison.
- Tezos California ICO lawsuit settles. On August 28, the Tezos Foundation and its founders agreed to settle the ongoing investor class action litigation, In re Tezos Securities Litigation, No. 3:17-cv-06779-RS, in the US District Court in the Northern District of California regarding the Tezos initial coin offering held in 2017. On August 28, the court approved the settlement by entry of an order and judgment awarding $25 million, plus litigation expenses. The settlement leaves unanswered the legal questions of whether the Tezos ICO qualified as a securities offering requiring registration with the SEC.
- DOJ announces guilty plea to offer and sale of unregistered securities. On September 3, the US Attorney’s Office for the District of New Jersey announced Joseph Frank Abel, California resident, pleaded guilty to conspiring to offer and sell unregistered securities in connection with his role in the BitClub Network, a cryptocurrency mining scheme worth at least $722 million. For more information on the case and the other defendants, please see our July and January issues.
- Texas securities regulator issues cease and desist order. On September 3, the Texas State Securities Board (TSSB) issued an Emergency Cease and Desist Order against Forex Birds, Ltd., a British company, and its director, Kumar Babu Gondesi, its parent company Pek Universe, and a Forex Birds trader, Eric Balusek for engaging in a cryptocurrency trading and investment scheme allegedly promising “more than a ‘Hundred Percent Profit’ guaranteed.” The scheme was advertised on the websites forexbirdsltd.com, forexbirds.com, and pekuniverse.com, which enabled potential investors to purchase cryptocurrency investments. None of the respondents were registered with the TSSB as dealers or agents.
SPOTLIGHT ON INTERNATIONAL DEVELOPMENTS
- Former Australian government employee avoids jail time for illegal mining. On September 18, Jonathan Khoo, a former contractor at the Australian government’s scientific research agency, reportedly was sentenced to a 15-month intensive corrections order and 300 hours of community service for crimes related to his installation of two supercomputers at the agency which allowed him to utilize agency computing power to mine cryptocurrency for personal gain.
- Chinese appeals court denies appeal of Bitmain seeking damages against cryptocurrency mining pool. On August 31, the Beijing No. 1 Intermediate People’s Court denied the appeal filed by Bitmain seeking to overturn the finding of the lower court as to the amount of damages to which it is entitled as the result of the violation by the co-founders of Poolin, a cryptocurrency mining pool, of their non-compete agreements with their former employer, Bitmain’s mining pool, BTC.com. Nonetheless, the appellate agreed to increase the fines to be paid by the Poolin co-founders for the violations.
- FATF publishes report on red flag indicators of virtual asset money laundering and terrorist financing. On September 14, the Financial Action Task Force (FATF) announced the publication of “Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing”, a report identifying red flag indications of money laundering and terrorist financing (ML/TF) methods intended to help virtual asset service providers, financial institutions, reporting entities and authorities detect and report this criminal activity.
- Russian financial monitoring service creating cryptocurrency tracking system. On August 11, Russia’s Rosfinmonitorin was reported to be planning to create an artificial intelligence system to analyze and track cryptocurrency transfers and payments in Russia, to identify money laundering and terrorism financing.
- Singapore Monetary Authority and industry groups release Code of Practice for payment service provider licensing. On August 13, the ACCESS Singapore Cryptocurrency and Blockchain Industry Association announced the release of a Code of Practice to “facilitate application of payment service provider licenses under Singapore’s Payment Services Act.” The Code was facilitated by the Monetary Authority of Singapore and developed in consultation with the Association of Banks in Singapore. The Code provides practical regulatory guidance on new types of digital payment activities and standardizes the approach to money laundering and terrorism financing, know-your-customer best practices and other issues relevant to cryptoasset and blockchain companies.
- South African regulator investigating crypto trading network. The South African Financial Sector Conduct Authority (FCSA) announced it is investigating Mirror Trading International Pty Ltd (MTI) for operating without a financial service provider license. FCSA asserts that MTI accepts clients’ funds in the form of Bitcoin, pool the funds into one trading account on a forex derivative trading platform and conduct high-frequency trading through the utilization of a bot. However, the FSCA claims it has not been able to conclusively confirm the existence of the more than R2.9 billion of funds asserted by MTI as maintained in client trading accounts. This inquiry follows the Texas State Securities Board’s cease-and-desist order against MTI as reported in our July issue.
- South Korea law enforcement seizes Bithumb. On September 2, law enforcement in Seoul reportedly raided the headquarters of Bithumb, a token trading platform. The search and seizure is reportedly linked to an investigation into Bithumb’s chairman of the board regarding a $25 million token sale.
- Swiss Senate passes Blockchain Act. On September 10, the Swiss Senate reportedly passed the Blockchain Act, a set of financial and corporate law reforms that had passed the Swiss House of Representatives earlier this year. The Blockchain Act establishes a framework for exchanging digital only securities and for reclaiming digital assets from bankrupt companies, as well as setting standards for crypt trading exchanges and addressing money laundering using cryptocurrencies. The law is expected to come into effect in early 2021.
- UK Financial Conduct Authority issues consultation on reporting obligations of cryptoasset businesses. On August 24, the UK Financial Conduct Authority (FCA) published a consultation paper entitled Extension of Annual Financial Crime Reporting Obligation. The paper proposes extending the annual reporting obligations of businesses regulated under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) to include firms “that carry on regulated activities that [the FCA] consider(s) potentially pose higher money laundering risk,” regardless of the firms’ revenue threshold. Such firms include “cryptoasset exchange providers and custodian wallet providers” Responses to the consultation must be provided by November 23.