Blockchain Developments in Interbank Settlement, Capital Markets, Cryptocurrency Payments

According to reports this week, a major German bank has joined the emerging payments initiative, built on the Quorum blockchain, of one of the largest U.S. financial services firms. The goal of the Quorum-based platform is to increase speed and decrease costs in settling interbank payments.

Also this week, the blockchain-focused subsidiary of a major online retailer issued a press release announcing a partnership with a “blockchain entertainment financing company” to issue blockchain-based securities that will finance the production of films, television programming and online content. In a related announcement, blockchain startup Harbor has reportedly created Ethereum-based tokens that will represent existing shares of four real estate funds, collectively valued at $100 million.

In payments news, according to reports, major U.S.-based cryptocurrency payment processor BitPay will soon begin supporting ether, the second-largest cryptocurrency by market capitalization. This will allow merchants partnering with BitPay to accept payments for goods and services in ether, without having to take custody of the cryptocurrency. Separately, according to reports, cryptocurrency payments firm Abra will soon expand its network to allow customers to exchange cryptocurrencies for cash “at 6,000 outlets across the Philippines,” including at franchise locations of a major international convenience store.

Finally, two notable reports on the cryptocurrency market were published this week. A U.S.-based cryptocurrency asset management firm published the report “Bitcoin: 2019 Investor Study.” Also, a data analytics firm published a consumer survey of cryptocurrency use around the world. The survey found that consumer use of cryptocurrencies is most common in Turkey, and the “world region where most crypto currency users were located was Latin America.”

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Multiple SEC Enforcement Actions, New Treasury Sanctions, More Crypto-Mining Malware Detected

This week, the LA office of the SEC brought an action against a Cayman Islands business, ICOBox, and its founder based in Beverly Hills, California, Nikolay Zvodokimov, for violations of the registration and broker-dealer provisions of the federal securities laws. The defendants allegedly raised $14 million from more than 2,000 investors since August 2017 for the purpose of building a platform for the distribution of initial coin offerings (ICOs) on behalf of other companies. The defendants sold their own blockchain-based token in an ICO, which the SEC alleges was a “security” requiring registration. The SEC further alleged that the defendants facilitated ICOs for dozens of companies, raising more than $650 million without registering as a broker-dealer.

Also this week, the U.S. Attorney’s Office in New York announced the arrest of a Great Neck, Long Island, attorney and a Rhode Island resident for purportedly extorting a cryptocurrency startup. The government alleges that the attorney was assisting the Seattle-based startup in November 2017 with raising monies through an ICO. The attorney is charged with, shortly before the expected closing, threatening to “destroy” the business of the startup if they did not pay him an additional $8.75 million in ether. He thereafter introduced his cohort to the company and made threatening statements which caused the company to make a “loan” to the men that was not repaid.

The U.S. Treasury has imposed sanctions on three North Korean state-sponsored groups that it believes are responsible for multiple cyberattacks on critical infrastructure, including the theft of approximately $571 million from five different cryptocurrency exchanges in Asia. Separately, according to a recent report, North Korea is believed to be developing its own cryptocurrency in an effort to avoid international sanctions.

Finally, a new instance of crypto-mining malware was reported this week that demonstrates increasingly complex techniques to avoid detection. According to the report, the “malware is notable because of the way it loads malicious kernel modules to keep its cryptocurrency mining operations under the radar.”

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International Crypto Developments: Tax, FATF Compliance, Enforcement Actions

On Sept. 12, French economy minister Bruno Le Maire stated that cryptocurrency-to-cryptocurrency transactions would remain tax exempt, but that France will tax gains when cryptocurrency is converted into traditional fiat currency. Le Maire also stated that value-added tax (VAT) would be assessed on cryptocurrency transactions only when they are used to acquire an asset or service. Implementation of these policies has reportedly begun across the country.

Earlier this week, the South Korean arm of the OKEX exchange announced it will delist five cryptocurrencies that provide heightened privacy features for users. Beginning Oct. 10, the exchange will no longer support trading in Monero, dash, zcash, horizen or super bitcoin. OKEX Korea cited the “travel rule” recommendation by the Financial Action Task Force (FATF), an intergovernmental body that aims to combat money laundering, as the reason for delisting the coins. The exchange explained that under the FATF rule, “it is recommended that exchanges be able to collect relevant information such as the name and address of the sender and recipient of the virtual asset.”

In the Philippines last week, local authorities, reportedly working off of a tip from the Chinese government, arrested 277 Chinese nationals under the suspicion that they were conducting a cryptocurrency fraud that targeted potential investors in China. The alleged scam was run through Grapefruit Services Inc., an authorized service provider for Golden Millennial Quickpay Inc. Ltd., an offshore company providing cryptocurrency services.

Also, this week, Australian law enforcement announced that it uncovered a massive identity theft and money laundering ring. The crime syndicate allegedly purchased stolen personal identification information off the darknet, and used it to open bank accounts and steal funds. The syndicate then purportedly laundered the stolen funds by purchasing untraceable assets that it converted into cryptocurrencies, which were then transferred to Australia.

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