Bitcoin Regulations News

Ukraine to Block Crypto Wallets for Illicit Funds, Finance Minister Says

Ukrainian authorities will be able to “block crypto wallets” in order to seize illegally obtained assets, a notice on the country’s Ministry of Finance says.

Oksana Markarova, Ukraine’s Finance Minister, reportedly said that the State Financial Monitoring Service of Ukraine (SFMS) will be the responsible authority for tracking the sources of origin of the funds on citizens’ crypto wallets.

Authorities use an analytical product scanning for the crypto funds’ origins and uses

As part of the regulatory policy, the SFMS will be able to not only find out the origin of crypto, but also detect how those funds have been spent, Markarova said in a Jan. 23 report placed on the official website of Ukraine’s Finance Ministry.

Markarova, who has been serving as Ukraine’s Finance Minister since late 2018, initially told the news in an interview with local business publication The text of the report on Ukraine’s Finance Ministry website is basically a copy of the original report on

Specifically, the SCFM claims to have access to an “analytical product” that purportedly allows investigators to look at the origins of crypto assets as well as their uses. According to Markarova, there have been a number of “successful cases” of investigations via the service.

Blocking crypto wallets is possible as a “result of complex investigations”

Markarova elaborated that halting crypto transactions is impossible, while blocking wallets is possible through private keys:

“It is impossible to stop operations now, but it is possible to block crypto wallets and remove illegally obtained crypto assets. This can be done by gaining access to the crypto’s private keys as a result of complex investigations.”

Cointelegraph asked the SCFM about their capabilities in blocking crypto wallets of Ukrainians but did not receive an immediate response. This story will be updated should they respond.

Action is part of the AML regulation approved by the Ukrainian government in late 2019

According to the statement, the new responsibility of the SCFM will be part of a new crypto-related law that was approved by the Ukranian government in December 2019.

On Dec. 6, the Verkhovna Rada, the parliament of Ukraine, published a final version of a money laundering law that will handle virtual assets and virtual asset service providers per guidelines of the Financial Action Task Force (FATF). The document says that cryptocurrency transactions are among operations that have to be monitored by relevant authorities.

As part of the new law, all crypto transactions up to 30,000 Ukrainian hryvnia ($1,300), will reportedly have to be accompanied with Know Your Customer identification and information on the nature of the business relationship between the payer and payee. Additionally, the new law will reportedly come into force on April 24, 2020.

Source Cointelegraph

Hawaii Introduces Bill Authorizing Banks to Offer Crypto Custody

The Hawaii State Senate has passed the first reading of a bill authorizing banks to hold digital assets in their custody.

The bill was introduced on Jan. 17 by five state senators, including the only Republican member of the Senate, Kurt Fevella. It passed the first reading on Jan. 21 and was then referred to the committees on Judiciary and Commerce, and Consumer Protection and Health on Jan. 23.

The bill specifies the set of provisions which a bank must adhere to in order to provide custodial services for digital assets. Custodial services cover “the safekeeping and management of customer currency and digital assets through the exercise of fiduciary and trust powers under this section as a custodian and includes fund administration and the execution of customer instructions.”

In order for a bank to qualify as a crypto custodian, it has to adhere to certain standards regarding accounting and internal controls, maintain IT best practices, and comply with federal Anti-Money Laundering and Know Your Customer requirements

Attempt to provide legal certainty for digital assets

In addition to opening up bank regulations to include cryptocurrencies, the proposed law would classify digital assets under the Uniform Commercial Code — a set of federal laws in the United States that aims to provide uniformity in legislation surrounding sales and commercial transactions in the country.

Digital assets would then further be sub-categorized as either digital consumer assets, digital securities, and virtual currencies. All are classified as intangible personal property.

Furthermore, the bill specifies the manner of perfecting a security interest in digital assets and discusses various methods such as smart contracts and multi-signature arrangements.

The proposed legislation also authorizes courts to hear claims relating to digital assets.

With digital assets, their security interest, and bank custodial services defined, the state courts are also given jurisdiction to hear claims in both law and equity regarding digital assets.

Hawaii loosening the reins on cryptocurrency

Hawaii has previously imposed strict requirements on firms dealing with cryptocurrency, causing the Coinbase exchange to cease its operations in the state almost three years ago.

If passed into law, this latest bill would not only give some clarity to classification of digital assets, bringing it in line with several other states. It would also set out a framework by which any compliant bank can act as a crypto custodian, which would potentially see Hawaii take a lead over many states in regulating this aspect of the cryptocurrency industry.

Additional reporting by Aaron Wood

Source Cointelegraph

Week Two of RBI Vs. Crypto at the Supreme Court of India

The Supreme Court of India has this week listened to further hearings in the landmark case against the Reserve Bank of India’s ban on banks’ dealings with crypto-related businesses.

On Jan. 22 and Jan. 23, proceedings continued with arguments presented by Ashim Sood, the legal counsel for the Internet & Mobile Association of India (IAMAI). 

In the wake of both public and industry-led petitions, the IAMAI brought a consolidated case against RBI’s imposition of a blanket ban on banks’ services to crypto businesses back in April 2018, which came into effect in July of that year. 

This week, Sood appeared before court alongside Nakul Dewan, who is acting as legal counsel for domestic cryptocurrency platforms.

This article draws on the extensive live reporting of Indian crypto regulatory news and analysis platform Crypto Kanoon (CK) via Twitter, as well as private correspondence with CK co-founder Kashif Raza. Embedded quotations are drawn from CK’s live summary of the court proceedings and are therefore not verbatim.

Jan. 22: some key contentions

As reported last week, Sood had argued against a definition of cryptocurrencies as currencies sensu stricto, noting that they can oscillate between serving as a commodity or store of value and as a medium of exchange. This debate on classification was picked up again in proceedings on Jan. 22, with Dewan arguing that:

“There are 2 things that a Crypto does. Its creation is that of a ‘good’ by the work of validation. Another is the medium of exchange for the group of people who recognize value in it.”

India’s Sale of Goods Act defines a good as anything movable that is not an actionable claim or money, the counsel noted. In a global context, he referred to a judgement by the Singapore International Commercial Court on cryptocurrency, which has held it to be an intangible property.

Countering this, Shyam Diwan, counsel for RBI, said that the central bank deems cryptocurrency to be a digital means of payment, not a commodity or store of value, and has therefore resolved “to adopt [a] nip in the bud approach” to ensure that the country’s payments system is protected and that alternatives do not take root in the economy. 

Diwan argued that the central bank is “empowered by law” in its intervention, which he claimed was in the interest of ensuring the effectiveness of monetary policy, upholding financial stability and overseeing cross-border capital flows.

Further arguments presented by the RBI counsel spanned concerns over operational risks, the lack of legal recourse and consumer protection for investors within peer-to-peer (p2p) systems of value transfer, and the difficulty of countering the use of cryptocurrencies for money laundering and terror financing.

Countering Sood’s arguments from last week that neither the government nor regulators had adequately collected and analyzed research material in support of their intervention, RBI’s counsel claimed that the central bank’s circular of April 2018 had been passed with “excellent understanding” of the risks posed by the new asset class.

Jan. 23

Shyam Diwan opened proceedings on Jan. 23 with a renewed focus on p2p exchanges that allow Indian users to transfer funds in foreign wallets, this time referring not only the ostensible Anti-Money Laundering and Combating the Financing of Terrorism risks but also pointing to potential contraventions of India’s Foreign Exchange Management Act, 1999 (FEMA). 

The Act holds that the central bank’s approval is required by those seeking to solicit foreign investment in India or to raise External Commercial Borrowings from banks abroad. This pertains not only to domestic operators, but equally to foreign corporations.

Focusing in the challenges posed by p2p models, the Judge questioned the counsel as to how the central bank circular and its restriction of banking services mitigates such risks at all:

“Your circular on stops banks to serve Crypto exchanges but [is] this circular is unable to stop trading between A and B?”

In response to this, the counsel conceded there remains a “loose end” insofar as the bank would be required to conduct further investigations to determine the source of transactions and mitigate risks, but claimed the circular itself serves to “discourage such transactions.”

The judge then turned to the exchanges’ counsel, observing that the trading of cryptocurrency remains active notwithstanding RBI’s action. 

Diwan responded, noting the drawdown in volumes and the “sharp decline in the prices after the RBI circular,” yet the judge countered this with reference to the global bear market and the relative irrelevance of the RBI circular for cryptocurrency valuations — a point with which the counsel concurred. 

In the next section of the hearing, the judge interceded with the observation that “being an honest contributor to the blockchain is more profitable than trying to tamper the chain.” In its live coverage of the proceedings, Crypto Kanoon remarked:

“It is a wonderful experience to witness a Supreme Court judge explaining facts about Blockchain and advocating its immutability. It is more exciting to see a Judge upholding Satoshi’s view.”

In private communication with Cointelegraph, Crypto Kanoon co-founder Kashif Raza singled out this moment as his highlight of the hearings so far. 

Raza further noted that the judge had taken stock of the fact that several of the prestigious Indian Institutes of Technology — represented in the case by Diwan as counsel — are now actively engaged in the nascent blockchain and cryptocurrency industry.

The remainder of the hearing on the morning of Jan. 23 centered on determinations of RBI’s powers under various statutes of Indian laws, the documents it drew upon for its decision and the nature of the central bank’s remit for preemptive action.

After breaking for lunch, Sood resumed arguments, steering discussion back to questions of classification and to the absence of legal grounds for prohibiting the use of cryptocurrency as a medium of exchange. 

Price volatility, the AIMAI counsel argued, tempers the use of cryptocurrency as a strict medium of exchange. He also provided further examples of international judgements on distinctions between goods and currency and underscored the wider potential of cryptocurrency as a technology, as with the Ethereum project. Sood argued:

“There is a cost which is required to maintain the efficiency of blockchain which is not possible without VCs [virtual currencies]. We don’t say that it is not possible to separate Crypto from Blockchain. But there is a valid and legitimate reason for both to go together. Crypto makes Blockchain viable for certain uses.”

Sood then presented a series of arguments centered on RBI’s statutory authority to take action, reiterating his arguments on the insufficiency of original research material as grounds for the central bank’s decision and the law’s inhibition of “capricious” and “arbitrary” interventions. 

The central bank, he contended, has honed in on the illegitimate uses of cryptocurrency and turned a blind eye to its legitimate applications. Moreover, there is no evidence that the sector is adversely — or otherwise — impacting national payments systems, Sood said. 

Citing a range of reports he judged may or may not have been studied by the central bank, he contended that “it is hard to believe that any reasonable person can reach to a conclusion about risk[s] to market integrity” on their basis. 

Instead, the counsel claimed, the circular appears to boil down to a consumer protection measure, and yet even as a preemptive action, it lacks a basis in a “clear, present and eminent danger” to the public interest or order.

The week ahead

Cointelegraph will continue to cover the hearings as they resume on Jan. 28.

On Jan. 27, two of the earliest petitions brought against RBI will also be heard by the Supreme Court, notwithstanding previous indications that the government would attempt to forestall them.

Source Cointelegraph

SEC Charges $600,000 ICO Project Opporty for Fraudulent Security Offering

The Securities and Exchange Commission (SEC) has charged Sergii Grybniak, the founder of the initial coin offering (ICO) project Opporty, according to a Jan. 21 press release. Despite raising approximately $600,000, the commission targeted Grybniak for falsely declaring the project as “100% SEC compliant.”

Opporty launched its ICO between September and October 2018. The project purported to provide a “blockchain-based ecosystem for small businesses and their customers,” primarily in the United States. The platform was meant to be a place where small businesses could list their services and enter into agreement via smart contracts.

The ICO for the OPP token raised $600,000 from approximately 200 investors, some of whom were located in the U.S.

While the SEC’s primary charge is for conducting an unregistered sale of securities, it also claims that the project made many misleading and false statements to encourage investment.

Among them, Opporty claimed to have onboarded thousands of “verified providers” to do business on the platform, the majority of which “had expressed no such willingness,” the SEC complaint reads.

A claim of having more than 17 million businesses in its database was revealed to be a simple purchase of a third-party catalog.

Finally, the SEC alleges that the project lied about a partnership with a “major software company.”

The accused founder is a resident of Brooklyn, against whom the SEC seeks injunctions against future digital offerings, the return of all ICO money and civil penalties.

Inconsistent targeting from the SEC

The case against Opporty is an outlier given the caliber of projects previously targeted by the SEC.

Notable cases include the litigation for Telegram’s $1.7 billion ICO, Kik’s offering for $97 million, and recently, Boaz Manor’s $30 million token sale.

By contrast, other projects received far more lenient treatment. The SEC settled with EOS parent company for $24 million, out of a $4 billion ICO. Debates around XRP’s security status did not yet result in an investigation by the regulator. Other projects, such as TurnKey Jet, received no-action letters by the SEC.

While the SEC pledged to offer more lenient and flexible treatment to crypto projects in 2020, it appears that some projects will remain under scrutiny.

One possible distinction for Opporty is that, in addition to offering unregistered securities, the project allegedly lied about its achievements. In addition, unlike many similar ICOs, the offering did not explicitly exclude U.S. investors from participating.

Source Cointelegraph

Deribit Releases Specifics of New KYC Policy Following Move to Panama

Deribit, a crypto futures and options exchange that is moving from the Netherlands to Panama to avoid Europe’s new Anti-Money Laundering law has released its newly updated Know Your Customer (KYC) policy.

In a Jan. 17 blog post, Deribit clearly said that its relocation to Panama has been mainly caused by the new Anti-Money Laundering Directive (5AMLD), a major European law that aims to tackle money laundering and terrorist financing by stricter regulation of crypto-related businesses.

While 5AMLD was enforced on Jan. 10, 2010, 5AMLD has not been adopted in the Netherlands to date, but is still expected to come into force in the upcoming months, Deribit said, adding:

“Due to the ambiguity of the 5AMLD implementation process, it is not known how the new regulation will affect Deribit.”

Panama-based Deribit is coming on Feb. 10, 2020

Deribit originally announced the news on Jan. 9, noting that starting from Feb. 10, 2020, the entire operational platform will no longer be operated by the Dutch company Deribit B.V., but DRB Panama, which is a 100% subsidiary of the Dutch entity. While Deribit’s operations alongside client holdings and system settings are moving to Panama, the company’s servers will be moved to London, the company said.

After the relocation, Deribit will apply new terms of service and privacy policy, which will be “materially similar to the terms of Deribit B.V.,” the firm noted.

Two tiers for KYC requirements to apply in February

However, the exchange will purportedly significantly alter its KYC requirements, according to the announcement. Basically, Deribit will introduce an additional tier of KYC requirements, providing two different KYC levels — Level 0 and Level 1 — in order to prevent illegal activities on its platform. Level 0 will allow Deribit clients to trade up to one bitcoin (BTC) or 50 ethers (ETH) per 24 hours, while no trading volume limits apply to Level 1.

Specifically, Deribit is planning to register all its current clients as Level 0 clients. Level 0 KYC requirements will require only basic information such as email, name, date of birth and country of residence. Meanwhile, Level 1 requires proof of your identification such as passport or government ID and portfolio margining.

The full list of Deribit’s new KYC requirements is available on their site.

Deribit KYC requirements as of 10 February 2020

Deribit KYC requirements as of 10 February 2020. Source: Deribit

Crypto industry to strengthen AML and KYC compliance

Deribit noted that the exchange reserves the right to immediately close any account on the platform and liquidate any open positions in case it finds out that provided account information such as location or place of residence was false.

The company added that Deribit had partnered with major blockchain analytics firm Chainalysis in order to strengthen its tools for monitoring suspicious crypto transactions.

Deribit is not the first company to change its operating structure due to new KYC and anti-money laundering laws enforced by the European Union. In fact, some companies such as crypto wallet provider Bottle Pay had to cease operations in late 2019, claiming that the regulatory scope would ruin existing user experience.

In contrast, other crypto-related firms in the EU such as U.K.-based CEX.IO exchange claim that they have been fully compliant with the new law as they had been extensively working on its compliance policy since 2014.

Source Cointelegraph

FCA’s New AML Regime – UK’s Crypto Market Will Have to Adapt in 2020

The Financial Conduct Authority (FCA) is now the United Kingdom’s sole Anti-Money Laundering (AML) authority for the crypto business. After a decade of compliance under a laissez-faire approach to AML legislation, U.K.-based crypto firms now face a significantly more stringent set of rules. With the FCA thrashing U.K. crypto regulation into shape, the consequences upon start-ups, user privacy and adoption will likely be wide-reaching. 

In its early stages, decentralized finance (DeFi) has uncovered a bounty of possibilities within the economic sector. From borderless banking to using blockchain technology, DeFi is leading a comprehensive coup d’état against an entrenched financial industry. Nevertheless, inherent benefits aside, cryptocurrencies aren’t without their pitfalls.

One particular snag arises from one of the fundamental characteristics of cryptocurrencies: anonymity. Within any given transaction, personal information is confined to a pseudonymous string of characters, also known as the public address. 

This singular address provides everything needed to carry out a monetary transfer, without compromising on user privacy. Given this, it’s perhaps unsurprising that money laundering miscreants are forming an affinity with digital assets.

Regulation rising

Last year, tensions surrounding cryptocurrency money laundering were front and center. A report from analytics firm Chainalysis confirmed that $2.8 billion of illicit Bitcoin (BTC) had been laundered via crypto exchanges in 2019. However, rather than condemning the exchanges themselves, the report took aim at the underregulated over-the-counter brokers operating within them.

Speaking to Cointelegraph, Jesse Spiro, head of policy at Chainalysis, believes that “Cryptocurrency’s inherent transparency makes this a solvable problem,” adding that the issue may have an internal solution:

“Money laundering in the fiat world is typically a black box that can often only be opened by getting a search warrant and poring over a suspect’s bank records. Here, the industry and law enforcement can see how these bad actors move money and take steps to shut them down.”

Looking to solve them the dilemma — but refusing to abide by inherent transparency alone —  the Financial Action Task Force (FATF) introduced the Travel Rule — a requirement forcing member nation crypto firms to disclose customer information on transfers over $1,000. 

This resulted in an entirely different set of tensions but from the cryptocurrency community this time. Many propagators of the industry remain diametrically opposed to the Travel Rule, deeming it an invasion of financial privacy. Spiro confirmed that the new rule posed a problem for privacy coins in particular:

“We expect this trend to continue as local regulation around the world begins to align with FATF, and privacy coins such as Zcash emphasize their ability to ‘turn on’ transparency as well.”

Indeed, paying no heed to the zeitgeist of the digital generation, scores of regulators followed the FATF’s suit, bolstering their own crypto-centric AML policies.

Related: New EU AML Compliance Laws Could Disrupt the Crypto Industry

In Europe, the EU released its 5th Anti-Money Laundering Directive (5AMLD). Along with it came a heavy crackdown on money laundering and terrorism financing. The directive upped the ante on the already unforgiving Know Your Customer (KYC) and AML compliance — forcing multiple crypto firms into liquidation. U.K.-based crypto wallet provider Bottle Pay was among the first casualties citing a refusal to disclose user information as the primary basis for its termination.

The FCA’s demands

Things are about to shake up even more for the British-based companies. Last year, in late October, the FCA declared it was taking over as the AML and Counter-Terrorist Financing (CTF) supervisor of the U.K. But what does this mean for U.K. crypto firms and the wider cryptocurrency market?

The FCA is tasked with ensuring that all U.K. crypto firms adhere to the AML/CTF policy. The bulk of this AML compliance is gleaned from a menagerie of legislation, including the EU’s 5AMLD, and the amended Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017.

FCA jurisdiction officially came into effect on Jan. 10, 2020. From here on out, all U.K.-crypto companies are required to register with the agency. Luckily, existing business operations may continue unregistered but are required to sign up for FCA supervision by Jan. 10, 2021 — or terminate all activity.

Nevertheless, FCA supervision will be undertaken regardless of company certification. This supervision will consist of the same approach faced by other organizations within the agency’s regulatory scope. Additionally, businesses exhibiting higher risk will incur a “more intrusive” level of scrutiny than others. 

As part of their supervisory assessments, the FCA requires businesses to provide policies and procedures in mitigating any AML/CTF risks. The agency advises firms to carry out their own evaluation of risk controls to confirm suitability. This also includes appointing a member of the board to ensure adherence to AML/CTF policy.

Persecuting privacy

While these protocols appear fairly typical, probe deeper into their “non-exhaustive” list of compliance orders, and you’ll unearth one stipulation that stands out as potentially problematic.

Nestled into the FCA’s supervisory guidelines is the following requirement, prompting crypto firms to:

“Undertake ongoing monitoring of all customers to ensure that transactions are consistent with the business’s knowledge of the customer, the customer’s business and risk profile.”

It seems the FCA isn’t taking an easy line when it comes to AML/CTF compliance. And while this was expected, the adage of regulation stifling innovation is perhaps applicable. As we’ve observed so far, the inability to provide financial privacy has already backfired for several crypto firms — and will likely impede exchanges and wallet providers more than most.

Anonymity sacrifices aside, the necessity to undertake KYC checks for every patron is sure to cause delays. However, with increased financial responsibilities along and added staffing requirements, the burden on crypto firms is becoming increasingly heavy.

Universal consequences

Cal Evans, a managing associate at Gresham International and a U.K. lawyer, aided the FCA in forging their crypto guidance. Speaking to Cointelegraph, Evans weighed in on the new regime’s potential ramifications on the broader crypto market:

“As we saw with the earlier EU draft of the law, the whole purpose of these measures (across the EU) is to stop the abuse of anonymity being used within the crypto space. These new measures will 100% impact on the privacy of crypto users. They are trying to stamp out the privacy associated with the use of many cryptocurrencies.”

Of course, while several cryptocurrencies can provide a degree of anonymity, none offer the same level of obscurity as the privacy coin. It stands to reason that these cryptocurrencies will cease to exist, at least via U.K.-based exchanges. Evans argues that many will simply migrate off-shore:

“Privacy coin holders will be impacted by this the most (within the U.K. market), however, many will most likely trade these coins privately or through an exchange which does not deploy such high KYC requirements. This means you will see many ‘private chain’ coins move to off-shore exchanges.”

Still, all things considered, regulation remains an innately positive thing. In fact, for the cryptocurrency industry, it’s a blessing — a well-disguised blessing, but one nonetheless.

This much is evident from Chainaylsis’s money laundering report, which concluded that fitting KYC implementation would have stopped the illicit BTC dealings in its tracks. Spiro stands by this, opining that local regulation, if implemented globally, could stamp out illicit activities and bad actors, which, in turn, might be hugely beneficial for mainstream adoption:

“Broader regulatory initiatives (FATF, 5AMLD) have already been initiated, and now local regulation is starting to follow, which is the intended progress for AML/CFT regulation. Additionally, as we see more illicit activity mitigated as the result of regulation, institutional adoption will become a reality, which will be key for future global adoption.”

Indeed, alongside effective regulatory oversight comes further legitimacy. London has always been a pioneering force in the fintech industry. However, with a major U.K. regulator now keeping tabs, the crypto industry will arguably garner further respect from the broader financial sector, possibly encouraging institutional participation within the U.K. Evans conceded that while these new regulations will boost institutional interest, it may end up alienating startups:

“The U.K. has long been a ‘safe heaven’ for companies looking to operate in the crypto market. The ease of incorporation and flexible approach to crypto that the crypto task force had taken to date, often meant that crypto companies could operate within the U.K. with relative ease. The biggest impact we are likely to see is startups avoiding the U.K. altogether and more regulated ‘established’ firms moving there.” 

Startups remain a crucial facet of any economy. These firms not only generate fresh jobs but also instill further dynamism to the market by encouraging innovation and stirring competition.

This isn’t the only issue arising from the FCA’s new regime, according to Ian Taylor, the chair of CryptoUK, a self-regulatory trade association. Speaking to Cointelegraph, Taylor argued that the FCA may have left some sizable holes yet to be patched and that the FCA’s controls lacked clarity on global access to the U.K. market:

“The draft definition of cryptoasset income implies that the fees will apply to U.K. legal entities, which would infer overseas firms might be able to operate either without license or without being required to establish a U.K.-based legal entity.”

Essentially, this creates a loophole that could afford foreign companies leverage over U.K. based businesses. “The FCA should consider clarifying this position to ensure fairness of competition,” Taylor concluded.

As with most regulatory shake-ups, The FCA’s new regime is a double-edged sword. There’s a delicate balance to be struck between smothering innovation and allowing a no-holds-barred marketplace. For the most part, the consensus seems to be that the FCA is slowly reaching an equilibrium.

Source Cointelegraph

Digital Chamber of Commerce Weighs In on Telegram Legal Battle With SEC

The Chamber of Digital Commerce has filed an amicus brief in the ongoing court case between encrypted messenger service Telegram and the United States Securities Exchange Commission (SEC).

Filed on Jan. 21, the document was authored by Lilya Tessler, a partner and the New York head of Sidley Austin LLP, counsel to the Chamber. 

In the amicus brief — a legal document that allows a non-litigant to submit its expertise or opinion in a case — the Chamber makes a number of arguments regarding how the U.S. District Court for the Southern District of New York should consider digital assets. 

The Chamber is a non-profit trade association established in 2014 which aims to promote the adoption of digital assets and blockchain-based technology. As part of its mission, the Chamber established major blockchain and crypto-related advocacy groups including the Blockchain Alliance and the Token Alliance.

Chamber urges for clarity regarding investment contracts 

Given its supportive stance on blockchain technology, the Chamber emphasized that it is not trying to prove whether Telegram’s $1.7 billion Gram token sale was a securities transaction. Instead, the trade association aims to ensure that there is enough clarity around regulations applying to digital assets:

“Although the Chamber does not have a view on whether the offer and sale of Grams is a securities transaction, the Chamber has an interest in ensuring that the legal framework applied to digital assets underlying an investment contract is clear and consistent.”

As such, the Chamber has urged the Court to distinguish the term of digital asset, which is the subject of an investment contract, from the securities transaction associated with it. The association stated that this requires two separate analyses including whether there is an investment contract that is offered in a securities transaction and whether the subject of the investment contract is a commodity that can be sold in a traditional commercial transaction.

The question of whether a token sale constitutes an investment contract — and therefore a securities offering — has been at the heart of the SEC’s case against Telegram. Earlier this month, Telegram stated that Gram does not constitute an investment product and that investors should not expect profits for buying and holding the token. 

The Chamber says that not all digital assets should be regulated as securities

In the document, the Chamber also states that not all digital assets should be regulated as securities simply because they are based on blockchain technology:

“We further respectfully request that the Court affirm that a digital asset is not a security solely by virtue of being in digital form or recorded in a blockchain database.”

Additionally, it noted that, while digital asset investors should be afforded full protections of securities laws, disclosures required by the securities laws “serve little purpose with respect to commercial transactions in the digital assets themselves.”

Moreover, the brief also stresses that not all digital asset-related transactions require the protection of securities laws, noting that there are a number of related regulators other than the SEC. The Chamber further requested the Court to consider multiple regulatory regimes while making its decision in SEC vs Telegram case:

“Depending on the relevant activity, other regulatory regimes exist to protect purchasers or counterparties. For example, fraud and market manipulation in certain digital asset transactions (depending on the facts and circumstances) is subject to CFTC enforcement authority. Other activities involving digital assets may also be subject to the Bank Secrecy Act, federal and state consumer protection laws, state money transmitter licensing laws, and state laws specific to virtual currency transactions, such as New York’s Virtual Currency Business Activity law.”

As Cointelegrpah reported, Telegram founder and CEO Pavel Durov recently gave an 18-hour long videotaped deposition for the court in Dubai. Throughout the deposition, SEC official Jorge Tenreiro questioned Durov extensively on the company’s expenses and funding used to set up the firm.

Source Cointelegraph

Australian Financial Regulator Could Oversee Facebook’s Calibra Wallet

The Australian Prudential Regulation Authority (APRA) is seeking to oversee stablecoin projects like Facebook’s controversial stablecoin Libra.

In an official proposal to the Senate published on Jan. 20, APRA submitted a possible regulatory framework dedicated to fintech and regulatory technology (regtech) covering topics ranging from digital wallets to data protection. 

The proposed framework, “is intended not only to be fit for purpose for the current financial system but also be able to accommodate future developments and technological advances, such as proposals for global stablecoin eco-systems that have been the subject of significant attention in recent months.”

Overall, APRA admits that digital wallets are an increasingly important part of the financial system thanks to the growing popularity of mobile applications and online purchases. Still, the regulator sees two distinct types of digital wallets:

“Some, but not all, digital wallets hold stored value on behalf of customers and are pre-paid facilities. Others (such as Apple Pay) hold customers’ credit/debit card details and only facilitate payments from that nominated account.”

In the paper, APRA states that it would oversee digital currency wallets that are widely used for payments and value storage, such as Libra’s corresponding Calibra wallet, while excluding wallets that are mostly used to pass payments through, such as Apple Pay. 

For wallets that actually hold the user’s value, APRA has started developing a new principles-based prudential standard to simplify the regulatory requirements for new types of fintech businesses.

Data-driven regulatory approach

The regulator also claims that its data collection efforts provide opportunities for regtech to support the industry. 

APRA is collaborating with multiple other government agencies to develop a data governance approach. To facilitate this effort, it has set up a standing committee with the Reserve Bank of Australia, Australian Bureau of Statistics, Australian Securities and Investments Commission and Treasury to coordinate data collection activities across different agencies.

APRA’s collected data will be processed through an “end-to-end platform that allows improved analytical ability.” The regulator also set up an Innovation Lab dedicated to developing its data science capabilities using artificial intelligence, machine-learning, network analysis and natural language processing. 

Regulators are slow to soften on Libra 

Lawmakers have responded harshly to the Libra stablecoin’s debut and subsequent efforts to gain approval in different jurisdictions worldwide. As Cointelegraph reported at the end of December, Switzerland’s President Ueli Maurer said that — in its current form — Libra has failed and will not be approved, because central banks will not accept an asset backed by a basket of currencies. 

Still, the parties involved in the Libra are still actively pursuing its development despite regulatory malcontent. Recently, the Libra Association — the governing body of the stablecoin — announced that it has formed a new committee to guide the network’s technical development.

Source Cointelegraph

Thai SEC Grants License to Asia-Pacific Crypto Exchange

Thailand’s securities regulator has granted a coveted digital assets exchange license to Asia-Pacific crypto-fiat trading platform Zipmex.

According to a press release shared with Cointelegraph on Jan. 20, Thailand’s Ministry of Finance and the Thai Securities and Exchange Commission (SEC) approved Zipmex for the license, which places strict regulatory requirements on applicants.

To secure the license, hopefuls must prove they have robust finances — with shareholder equity of at least 50 million baht (~$1.65 million) — and operate at a high standard in their IT and cyber security systems. 

Under Thai law, licensed digital assets operators that are granted a license are classified as financial institutions and must comply with Anti Money Laundering reporting obligations. 

A bid for both retail and institutional investors

As per the press release, roughly 30 crypto exchanges have applied for licenses with the SEC, two of whom have already been rejected on the grounds of insufficient Know Your Customer and security measures.

The license was introduced as part of the country’s regulatory framework for digital assets, which led to the launch of its first legal initial coin offering in October 2019. 

Zipmex counts the former chairman of Stock Exchange Thailand, Dr. Sahit Limpongpan, and Professor Dr. Chaiya Yimwilai, Vice Minister to the Thai Deputy Prime Minister, as members of its advisory board.

The operator has cemented a partnership with AEC Securities Public Company in Thailand, which specializes in securities, brokerage and investment banking, in a bid to draw in both retail and institutional investors in the country.

With the license, the exchange expects to start operating in Thailand early this year, having previously launched country-centric platforms in Australia, Singapore and Indonesia.

It also closed a $3 million capital raise led by Infinity Blockchain Holdings in 2018. In a statement for the release, Dr. Limpongpan said:

“Digital currencies and securities are emerging asset classes for both the banked and unbanked. It is an interesting time in our financial history, and I’m glad Thai regulators are working with exchanges to build regulatory frameworks for these new technologies to operate within.”

A more conducive regulatory apparatus

Though they initially attempted to impose a ban on Bitcoin (BTC) back in 2013, Thai authorities came to adopt a more proactive and pragmatic approach to the crypto sector over the past year.

As reported, the Thai SEC granted licenses to four cryptocurrency firms in January of last year: Bitcoin Exchange Co., Bitkub Online Co. and Satang Corporation, as well as digital currency broker-dealer Coins TH.

The approvals were followed by an amendment to the country’s Securities and Exchange Act in February 2019, which legitimized the issuance of tokenized securities via blockchain technology.

Source Cointelegraph

Crypto Fights for Freedom in India’s Supreme Court, Critics Cite Risk

Following the session that took place last August, a three-judge panel from India’s Supreme Court reconvened once again this week to discuss the much-hyped Crypto v. RBI case. During the last hearing, the Supreme Court had asked the Reserve Bank of India (RBI) to clarify its position as to why exactly it enforced a nationwide banking ban on the country’s crypto market, as well as to discuss the seemingly unconstitutional nature of its aforementioned move. 

Ever since the RBI decided to go ahead and issue its controversial prohibition order, a number of public and industry-led petitions have been filed by prominent members of the Indian crypto community contending that the RBI’s decision was not only unjust but also in clear violation of the law. 

As part of its reply, the RBI’s legal counsel pointed out that the institution has complete authority to operate India’s currency and credit system and to protect the nation’s overall financial stability — if it feels the need to do so.

In this regard, the ongoing petition that is currently being heard in front of the Supreme Court has been brought forth by the Internet And Mobile Association of India (IAMAI), a not-for-profit industry body that seeks to expand and enhance India’s online and mobile value-added services sectors.

Latest developments

When the aforementioned case was reopened earlier this week, Ashim Sood, the counsel for the IAMAI, started off by reviewing the arguments that had previously been discussed in court last August. For starters, he once again explained to the judges some of the basics underlying cryptocurrency and blockchain technology and also read out the guidelines issued by the Financial Action Task Force last year. 

Additionally, after explaining how countries like Australia, Malta and Japan had been largely successful in regulating their local crypto markets, he emphasized the need for conventional banking avenues to be made available to blockchain/crypto business owners. Under such favorable regulations, investors, as well as casual altcoin enthusiasts, could gain access to digital currencies in a streamlined, transparent manner.

Cointelegraph spoke to Sumit Gupta, the CEO of DCX, an Indian cryptocurrency exchange, and he believes that Sood has proffered some good arguments on the matter of how the technology works, and how it can be used, given that the right regulation is in place:

“On the question of anonymity with virtual currencies, he explained the strong KYC process practiced by various exchanges. He argued that, although the industry follows strict self-regulation, it cannot enforce them beyond a point, and hence highlighted the importance of positive regulation. He discussed that every new technology will have a grey side, however, positive regulations that curb the negatives are the need of the hour.”

As part of its defense scheme, the RBI alluded to incidents, such as the Binance KYC breach of 2019, as being clear examples of why the crypto industry at large is still in its infancy, and thus, poses a massive cybersecurity threat to the economy of any nation where it is allowed to foster and grow. 

However, Sood told the judges that such cyber attacks were exactly the reason why positive regulatory measures were needed in India — so that the sector as a whole could be better equipped to face such challenges.

He then alluded to a couple of previous judgments passed by the Supreme Court, which clearly stated that legal activities can be only be shut down if a definitive risk has first been identified by the Indian parliament and not by an administrative body like the RBI. In regards to the matter, Gupta added:

“RBI’s arguments may sound inadequate, however, that is something for the judges to decide. Our judicial processes are strong enough and we have complete trust in them.”

Lastly, Kashif Raza, founder of Crypto Kanoon, an Indian crypto news platform that has been covering the ongoing hearing live via its Twitter channel, told Cointelegraph that the main goal of IAMAI’s legal counsel is to establish the fact that the Indian crypto community is not trying to push digital assets as being currencies but rather as alternative investment options. He further added:

“The IAMAI drew the focus of the court on the fact that nowhere in the FATF’s guidelines is it mentioned that cryptocurrencies should be banned completely. India is a member of the FATF, and most of the agency’s guidelines demand for KYC and better cooperation between members when it comes to controlling the cross border movement of crypto-assets.”

Indian Judges seem to have an open mind

Indian judges, who are currently presiding over the hearing, seem to be eager to learn about crypto-based technologies and the immense economic possibilities that they represent. For example, they have requested the legal counsel for the IAMAI to explain how cryptocurrencies were being regulated in countries like Australia, Italy, Malta and Japan, and whether or not instances of money laundering or tax evasion had increased following the implementation of these measures. 

In response, Sood proceeded to take the judges through a detailed comparative table related to different countries, their regime nature and how they were handling crypto-related matters within their respective jurisdictions. Furthermore, he also cited the example of Mt. Gox, and how its collapse led to the creation of an efficient regulatory framework by the Japanese government.

Related: India’s Income Tax Department Is Secretly Training Its Officials to Investigate Cryptocurrencies

The Judges further requested a detailed explanation regarding how current crypto-crypto and peer-to-peer exchange models work as well as how digital currency trading actually takes place. Sood, in response, explained to the panel the various laws that are currently being employed in South Africa, the United Kingdom and certain states of the United States that allow people to trade digital assets in a fully legal and taxable manner.

Lastly, the Supreme Court questioned the IAMAI about various suspicious services, like Silk Road, the dark web, Tor and onion routing, and how such avenues have been used by bad actors to abuse digital currencies in the past. However, the judges did concede that crypto, like any other technology, was not bad in itself and could be used for nefarious reasons when in the hands of the wrong people. 

To elaborate on the subject, Varun Sethi, CEO of Blockchain Lawyer, told Cointelegraph that “The RBI’s argument that crypto’s anonymous nature poses a threat to national security cannot be totally ruled out.” He added that, indeed, crypto can freely flow between international borders, while the cybersecurity risks are hard to deny. He went on to say:

“However, such arguments are similar to challenges faced by other regulators also. The court would surely take cognizance of similar facts and how it was dealt with in other countries.”

Some key concerns put forth by the Supreme Court

Even though the Supreme Court seems to be finally understanding the potential that crypto and blockchain technologies possess in regards to transforming a multitude of local industrial domains, it did express concerns regarding the use of digital assets for money laundering and tax evasion purposes. 

Digging deeper into this argument, Tabassum Naiz, founder of Bit2Buzz, an Indian crypto hub that presents users with a host of educational content, pointed out to Cointelegraph that recently, a number of established Indian financial/banking entities suffered heavy losses due to a host of different cybersecurity breaches and threats. Naiz alluded to banks like HDFC, ICICI, the State Bank of India, Axis and Punjab National Bank as having been embroiled in massive scandals related to money laundering and data breaches. 

While local cryptocurrency exchanges do make use of KYC protocols to minimize the occurrence of such issues, their measures are largely self-designed and, therefore, need to be validated by a central regulatory agency. On the issue, Sethi highlighted:

“If an exchange’s KYC processes are stringent and also validated by a government regulator, then the argument that all crypto transactions are used only for anonymous trading won’t hold valid. That’s where government policy is needed.”

Gupta, too, reiterated Sethi’s sentiments and claimed that self-regulation has its limits and that a government devised regulatory framework will actually strengthen the Indian crypto ecosystem — a point that has been sufficiently argued by Sood and his team this past week.

Lastly, a World Bank report regarding mining-based electricity consumption was also read in court to highlight the potential negative impact of the crypto industry on India’s power sector. However, the judges proceeded to spell out the various advantages of cryptocurrencies and how they have the potential to serve the under/unbanked, as well as fill out the many deficiencies that currently exist within the Indian payments market.

Supreme Court grills the RBI

As aforementioned, the RBI has claimed that the reason it restricted crypto activities in India was because of a lack of clear regulations, especially in regards to things like financial anonymity, money laundering, etc. However, in the opinion of the judges, it was the responsibility of the RBI — and not the local crypto exchanges — to devise a regulatory system that incorporates crypto into India’s general financial framework. Essentially, the Supreme Court labeled the RBI’s ban as being a burden-shifting ploy that was unjust.

Similarly, when the RBI stated that digital currencies were only being used by people who wanted to mask their identities, Sood told the judges that this information was factually incorrect and that many people merely viewed cryptocurrencies as being alternative investment options to conventional stocks and bonds.

What may the verdict look like?

As things stand, it might be a little early to definitively claim to which side the verdict will swing, especially since the RBI has yet to present its complete argument in front of the judiciary. However, Gupta is confident that the IAMAI’s case is strong, and that the judges will see merit in the arguments put forth by the independent agency, “We are of the firm belief that the judges will see reason in our arguments and provide a judgment, which is fair and favorable.”

It is expected that on Tuesday, Jan. 21, the RBI will submit all of its remaining statements regarding its concerns about cryptocurrencies.

Source Cointelegraph