|AML||The Office of Foreign Assets Control (OFAC) fines BitPay for apparent violations of multiple sanctions programs related to digital currency transactions (18.02.2021). Bit Pay, a U.S. based company that offers a payment processing solution for merchants to accept digital currency as payment for goods and services, has agreed to remit $507,375 to settle its potential civil liability for 2,102 apparent violations of multiple sanctions programs. BitPay allowed persons who appear to have been located in the Crimea region of Ukraine, Cuba, North Korea, Iran, Sudan, and Syria to transact with merchants in the United States and elsewhere using digital currency on BitPay’s platform even though BitPay had location information, including Internet Protocol (IP) addresses and other location data, about those persons prior to effecting the transactions.
The action emphasizes that OFAC obligations apply to all U.S. persons, including those involved in providing digital currency services. As part of a risk-based approach, OFAC encourages companies that provide digital currency services to implement sanctions compliance controls commensurate with their risk profile.
|Stablecoins||Tether, Bitfinex and iFinex (The Companies) settle with New York Attorney General (NYAG) over allegations regarding hiding of losses, and misrepresentation about the fiat reserves that backed Tether’s “USDT” tokens. (17.02.2021). As part of the settlement, it was agreed, inter alia, on the following:
|Securities||Investors’ class action lawsuit against a BNT token issuer, an on-chain liquidity provider Bancor, was dismissed by a New York court (22.02.2021). The plaintiff alleged that BNT token was a security and that as a result of its issuance, promotion, and sale by, or on behalf of, Bancor, he had suffered damages and sought rescission of his purchase. The court ruled that the plaintiff lacked personal jurisdiction, had failed to demonstrate injury-in-fact, and that New York is not a reasonable and convenient place to conduct this litigation. The court mentioned that promotional materials which included repeated solicitation of BNT sales at conferences across the US, and communication through social media referring to US support by Bancor’s service provider, “are insufficient to support personal jurisdiction over citizens of another country”. The court has also added that “the federal securities laws do not reach a purchase and sale outside the United States”.|
|SEC Division of Examination outlines focus on digital assets (26.02.2021). The Division of examination has issued a risk alert which provide observations made by Division staff during the examination of investment advisers, broker-dealers, and transfer agents regarding Digital Asset Securities.
The Division is of the opinion that this risk alert may assist firms in developing and enhancing their compliance practices. In addition, it provides transparency about areas of focus for the Division’s future examinations.
|Developments in the SEC v. Ripple Labs, Inc. et al. case.
|Securities & Commodities
|New York Attorney General (NYAG) sues to shut down allegedly illegal cryptocurrency trading platform and virtual currency, and seeks to recoup defrauded funds for thousands of investors (17.2.2021). In the lawsuit filed in New York County State Supreme court, NYAG seeks to stop Coinseed, Inc. and two individuals (“the defendants”) from further operating as unregistered commodities broker-dealers through their mobile app, as well as return the investments of Coinseed’s cryptocurrency, the “CSD” token, named by the NYAG “worthless”. NYAG alleges that the defendants were unlawfully trading cryptocurrencies without being a registered broker-dealer in New York, while simultaneously failing to disclose certain fees associated with the trading of virtual currencies on their investor’s behalf. Additionally, Attorney General James charges the defendants with conducting an unregistered securities offering in the form of an initial coin offering for CSD.
NYAG stated the following regarding the lawsuit: “This lawsuit should send a clear message to all those trading cryptocurrencies that my office will work tirelessly to ensure transparency and fairness in the market and will not hesitate to protect investors’ wallets against all those who seek to defraud them.”
|NYAG issued industry alert on the risks associated with trading in virtual currencies (1.3.2021). The industry alert reminds that companies dealing in virtual currencies that are commodities or securities under New York law, must register with the Office of the Attorney General.|
|A new bill aiming to foster the use of blockchain and digital services was introduced to the Rhode Island state legislators (21.2.2021). The proposed law, entitled “Rhode Island Economic Growth Blockchain Act”, was introduced by two Republican House representatives, namely David Place and Blake Filippi, and proposed, among other things, the creation of a regulatory sandbox for startups developing digital services and products, including blockchain-related services and products.|
|Mining (Kentucky)||Kentucky approves a Bill providing tax reliefs for crypto miners (3.3.2021). The bill adds “cryptocurrency facilities” with a minimum capital investment of one million dollars to the list of entities eligible for tax incentives and moves sales tax obligations from electricity purchased for use by cryptocurrency mining businesses. The bill is expected to come into force on 1 July 2021.|
|Proposed Legislation (Iowa)||A bill recognizing use cases of blockchain and smart contracts was introduced in the U.S. state of Iowa (4.3.2021). Among other things, the bill introduces parity of legal status for smart contracts as other forms of secure records and expands the state’s definition of a “contract” to include smart contracts and other agreements secured by blockchain. This means that, according to the bill, no contract would be considered to have no legal effect by virtue of being a smart contract.|
|Proposed changes to the EU MiCA Regulation||The European Central Bank (ECB) issued an opinion on the EU Commission’s proposed Markets in Crypto-Assets (MiCA) Regulation (22.2.2021). The proposed MiCA Regulation aims to present a coherent regulatory and supervisory regime for the EU, while keeping up with the rapidly evolving technology. The ECB opinion generally supports the overall goals of the regulation, but believes there are some areas that should be amended. Most of the proposed amendments concern e-money and stablecoins. One of the most notable changes is the proposal that “[w]here an asset-reference arrangement [i.e., stablecoins] is tantamount to a payment system or scheme, the assessment of the potential threat to the conduct of monetary policy, and to the smooth operation of payment systems, should fall within the exclusive competence of the ECB.” Effectively, this would give central banks veto power over the issuance of stablecoins.|
|Suspension of the planned crypto regulations||The securities and Exchange Commission (“SEC”) suspended its planned crypto regulations in the wake of the central bank (“CB”) ban (11.2.2021). On 5 February 2021, the Nigerian CB issued a letter prohibiting financial institutions from providing services to cryptoasset exchanges and other businesses transacting in cryptocurrencies in the country. It has also ordered banks to close down accounts of persons or entities transacting in or operating crypto exchanges. In light of that statement, the SEC issued a statement noting that its planned sandbox (from September 2020) for cryptoasset exchanges is suspended and that exchanges affected by the CB’s letter would fall outside the regulatory framework published by the SEC on September 2020.|
|Mining||Chinese region reportedly plans to ban cryptocurrency mining (25.2.2021). An autonomous region of China (Inner Mongolia) has reportedly released draft policy banning cryptocurrency mining and declaring that all such projects will be closed by April. The region is a popular destination in the crypto mining industry, and it is known for its cheap power costs. The reason behind the ban is the aim to reduce the energy consumption in 2021.|
|Securities||The Australian Securities and Investments Commission (ASIC) announced that is open to the idea of facilitating the listing of exchange-traded funds (ETF) linked to the bitcoin price (12.2.2021). ASIC said it has no issues with Cosmos Bitcoin linked ETF that is set to be listed on the Australian Stock Exchange (ASX), as long as the platform listing that ETF has appropriate rules to protect the investors.|
|Securities||The Ontario Securities Commission has approved first North American bitcoin exchange-traded fund (ETF) on the Toronto Stock Exchange (11.2.2021).|