In this issue:

Crypto Firms Expand Offerings in Stablecoins, Private Key Management

FATF Publishes Targeted Update on Virtual Assets

Nevada Financial Regulator Seeks to Place Crypto Custodian into Receivership

CFTC Announces Multiple Enforcement Actions Alleging Digital Asset Fraud

Israeli Agency Seizes Hezbollah Crypto; Illicit Crypto Report Published

Crypto Firms Expand Offerings in Stablecoins, Private Key Management

The issuer of the Pax Dollar (USDP) stablecoin recently announced that USDP is now available to all Mexican customers of a major Latin American online payments platform. According to a press release, “Mexico is one of the most active marketplaces for digital assets with millions of users tapping into the ecosystem to gain access to key financial services.”

Another recent press release announced that Fireblocks, a digital asset enterprise platform provider, has expanded “its highly secure MPC-CMP wallet and key management technology to include support for HSMs and public and private cloud, including Thales, Securosys … GCP, and Alibaba Cloud.” According to the press release, among other things, the expanded product offering will include (1) enabling customers to host all MPC key shares across multiple servers in their data centers and cloud; (2) new cloud data centers across the EU, Switzerland and Hong Kong along with Fireblocks’ current cloud data centers in the U.S.; and (3) a dedicated single-tenant cloud environment.

In other payments news, the Bank for International Settlements (BIS) recently published an interim report on Project Mariana, which expands on wholesale Central Bank Digital Currency (wCBDC) experiments “with the aim of improving the effectiveness, safety and transparency of FX trading and settlement.” According to the interim report, among other things, Project Mariana borrows from decentralized finance technology by exploring “joint trading and settlement in wCBDCs using a so-called automated market-maker,” “tests a common standard for fungible wCBDC tokens” and “investigates asset mobility between different blockchain-based networks using so-called bridges.”

For more information, please refer to the following links:

FATF Publishes Targeted Update on Virtual Assets

The Financial Action Task Force (FATF) recently published a report entitled Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers. According to a FATF press release, the Targeted Update “provides an update on country compliance with FATF’s Recommendation 15 and its Interpretative Note (R.15/INR.15), including the Travel Rule, and updates on emerging risks and market developments, including on Decentralized Finance (DeFi), Peer-to-Peer transactions (P2P), and Non-Fungible Tokens (NFTs), unhosted wallets, and stablecoins.” Among other things, the report discusses the following key findings:

  • Based on 98 FATF mutual evaluation and follow-up reports since the revised R.15/INR.15 was adopted, 75% of jurisdictions are only partially or not compliant with the FATF’s requirements related to VAs and VASPs.
  • Of the 151 jurisdictions that responded to FATF’s 2023 Survey, more than half still have not taken any steps toward implementing the Travel Rule with respect to VAs.
  • While DeFi and unhosted wallets do not account for a large share of VA transactions, they are at risk of misuse, including by sanctioned actors.

According to the report, FATF will publish another Targeted Update report in 2024, along with “a table showing which steps FATF member jurisdictions … have taken towards implementing R.15 (e.g., undertaking a risk assessment, enacting legislation to regulate VASPs, conducting a supervisory inspection, etc.).”

For more information, please refer to the following links:

Nevada Financial Regulator Seeks to Place Crypto Custodian into Receivership

Nevada’s Financial Institutions Division (NFID) recently petitioned its state court to place a Nevada-registered crypto custodian into receivership. An NFID press release explains that the petition “asks the court to appoint a receiver to take over the day-to-day operations of the company and thoroughly examine all its finances” to determine the best option to protect the custodian’s clients, “either by rehabilitating and returning the company to private management or by liquidating the company.” Earlier this month, NFID had filed a cease and desist order that alleged the custodian had “considerably deteriorated to a critically deficient level” and was in a position “where it is in an unsafe or unsound condition to transact business.” The receivership request provides more detail, specifying that the custodian owes clients over $85 million in fiat but has only $3 million on hand. Likewise, the custodian allegedly owes $69.5 million in crypto and has only $68.6 million in crypto on hand. According to the petition, at least part of the custodian’s position is a result of miscommunication between old and new management, which led to an inability to access numerous customer accounts. Notably, this receivership request comes days after another crypto custodian reportedly called off its bid to acquire its troubled competitor.

For more information, please refer to the following links:

CFTC Announces Multiple Enforcement Actions Alleging Digital Asset Fraud

The U.S. Commodity Futures Trading Commission (CFTC) recently published multiple press releases announcing digital asset enforcement actions. The first press release announced an enforcement action against William Koo Ichioka, alleging the defendant solicited and misappropriated over $21 million from more than 100 commodity pool participants in a fraud scheme promising investments in bitcoin and ether with a term of “30 business days with a 10% return.” According to a CFTC press release, the defendant misappropriated investors’ funds, using the funds “to pay back other participants, and for his personal use and expenses, such as luxury automobiles, jewelry and rent payments.” According to a statement from CFTC Commissioner Kristin N. Johnson, “To conceal losses, Ichioka falsified financial documents to inflate the amount of assets in the pool accounts and also provided false statements of account to participants.” The U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission both filed parallel actions. Among other things, the DOJ action charged Ichioka with wire fraud, filing false or fraudulent tax returns, and securities and commodities fraud.

A second CFTC press release announced an enforcement action against a defendant who allegedly “misappropriated over $1.3 million in customer funds intended for digital asset commodity and forex trading.” The defendant allegedly operated a “romance scam” known as “Pig Butchering” whereby the defendant cultivated a romantic relationship with at least 29 customers before soliciting them to participate in a fraudulent financial opportunity. According to the CFTC press release, instead of using customer funds for digital asset and forex trading, the defendant misappropriated the funds for his personal use and “transferred the majority of the funds to bank accounts, digital wallets, and digital asset trading platforms under the control of other members of the fraudulent scheme.”

A third CFTC press release announced a default judgment against a defendant who “operated a fraudulent scheme that solicited and misappropriated funds to purportedly trade digital commodity assets.” According to the CFTC press release, “more than 150 individuals and entities deposited at least $33 million” with the defendant but “less than $10 million was used to trade digital commodity assets and the remaining funds were misappropriated for personal use or to prolong the fraudulent trading scheme.”

For more information, please refer to the following links:

Israeli Agency Seizes Hezbollah Crypto; Illicit Crypto Report Published

According to a recent blog post by blockchain analytics firm Chainalysis, “Israel’s National Bureau for Counter Terror Financing (NBCTF) has, for the first time ever, seized cryptocurrency from Hezbollah, a heavily sanctioned terrorist group based in Lebanon, and from Iran’s Quds Force, which funds and works extensively with Hezbollah.” The blog post notes that the Israeli agency “seized roughly $1.7 million worth of cryptocurrency and disrupted cryptocurrency-based terrorism financing infrastructure jointly run by the two organizations.” Among other things, the blog post provides details on the methods used by Hezbollah to move funds “first from financial facilitators to hawala services and OTC brokers, and then to Hezbollah-controlled addresses at mainstream [cryptocurrency] exchanges.”

Another blockchain analytics firm, TRM Labs, recently published its Illicit Crypto Ecosystem Report. The report “spans over 20 blockchains and covers all major known forms of crypto-mediated illicit finance, as well as the use of cryptocurrency to launder the proceeds of crime.” The first part of the report “maps out criminal activities that generate crypto proceeds of crime including illicit commerce, illicit payments, fraud, and theft.” The second part “catalogs the way the crypto ecosystem is used in laundering proceeds of crime, whether fiat or crypto.” Among its many findings, the report notes that “the fall in crypto’s value does not appear to have dissuaded criminals from using and exploiting crypto” and “the various kinds of crypto crime and their perpetrators do not operate in silos; rather, they are highly intertwined.”

For more information, please refer to the following links: