Crypto regulation looms this week

Look for new global rules for cryptocurrency, used by criminals to profit from cyber attacks

Washington is the center of the world for the cryptocurrency industry this week, as top cryptocurrency executives and global financial regulators gather in the city for a pair of meetings that could indicate how the sector will fit into the broader financial system.

The meetings come as US law enforcement and national security officials warn that cybercriminals are using cryptocurrencies and tools to profit from cyberattacks and launder their ill-gotten gains.

US politicians take the stage first, starting today, as the two-day DC Fintech Week kicks off with speeches from Acting Comptroller of the Currency Michael Hsu and Rostin Behnam, chairman of the Commodity Futures Trading Commission who has been angling to oversee more of the industry.

But a potentially bigger reveal will come as soon as Wednesday: The Financial Stability Board, which coordinates international financial regulation, is set to unveil its proposed global rules for crypto amid a conference of Group of 20 finance ministers. The board’s plan is expected to advocate a strict approach to ensure that digital assets do not pose a systemic risk or allow terrorists and other criminals to finance their businesses.

• The group has no formal power to set policy. But it has a track record of pushing its views into force. First, the recommended capital and liquidity requirements for banks in the wake of the global financial crisis helped establish the new standard, Cowen Washington Research analyst Jaret Seiberg wrote in a note to clients. “That gives it punch.”
• And US regulators who have called for a crackdown on the crypto industry play a key role in the group. “It’s fair to say that the U.S. wants to lead on this globally and has largely been a leader on that,” said Patrick Dougherty, a former Securities and Exchange Commission attorney who now sits on the board of the Global Digital Asset and Cryptocurrency Association.

The White House has called for oversight and enforcement in the cryptocurrency space, with officials citing massive North Korean hacks and the use of cryptocurrency in the ransomware ecosystem. President Biden is considering changes to financial and other laws to allow prosecutors to investigate and crack down on criminals who use cryptocurrency, the White House said.

• Law enforcement officials have reclaimed some ransoms paid to cybercriminals, and the Treasury Department has sanctioned cryptocurrency mixers that have been used by cybercriminals to launder their profits. But the cryptocurrency industry has been critical of the sanctions against Tornado Cash, a mixer, with cryptocurrency exchange Coinbase bankrolling a lawsuit to challenge the sanctions.

The crypto industry has won powerful friends in Congress, but federal financial watchdogs remain skeptical.

• Just last week, the US supercommittee of financial regulators known as the Financial Stability Oversight Council issued a warning that, left unchecked, crypto could grow into a systemic financial threat.
• SEC Chairman Gary Gensler, who sits on both that panel and the global board, has drawn criticism from the crypto industry for arguing that existing securities laws give him the authority he needs to oversee the industry.

The Board for Financial Stability appears to be making a similar case. Steven Maijoor, who makes the group’s policy, told Politico last month that “many of the activities in cryptoassets and cryptoasset markets are similar to activities in the traditional financial system, and so we take the approach: Same activity, same risk, same regulation.”

The board is also set to take a closer look at stablecoins, the digital tokens that tie their value to an external asset such as the dollar. The failure of the Terra stablecoin in May wiped out $40 billion in value and accelerated a decline in crypto markets, underscoring the urgency of establishing rules for issuers of these cryptocurrencies. Still, a congressional push to regulate stablecoins has begun ahead of the midterm elections. Congress, rather than global regulators, still needs to resolve the issue with clearer rules for the assets, said Dario de Martino, co-head of the fintech and blockchain practice at law firm Allen & Overy.

Meanwhile, the Crypto Council for Innovation, an industry group that takes an international approach, warned “a heavy-handed approach could cut this technology at the knees.” Linda Jeng, the group’s global head of regulation, said in a statement that global coordination “is a good thing. That means companies don’t have dozens of different rules to follow. But we are moving into a web3 economy and we hope they consider the benefits of what a web3 economy can do.”

Flight operations were not affected by the denial-of-service attack by pro-Russian hackers, officials say

Websites for half a dozen US airports went offline after a group of pro-Russian hackers known as Killnet called for coordinated denial-of-service attacks on a list that included US airports, Lori Aratani reports. Denial of service attacks flood targets with traffic until they cannot respond or crash.

“Executives at several airports said they notified the FBI and the Transportation Security Administration of the cyberattacks,” Lori writes. “In a statement, the FBI said it was aware of the incident but had no additional information. The TSA declined to comment and referred inquiries to individual airports.”

Although the attacks were highly visible, Mandiant Vice President of Intelligence John Hultquist characterized denial-of-service attacks as more of a “public nuisance” than a serious cybersecurity threat because they do not target key internal systems that would affect the operation of an airport. But when such attacks do take place, they are effective at attracting attention, he said.

The Killnet group has been behind other such attacks, including those targeting European authorities. Last week, the websites of some US states went down after the group targeted states, NBC News reported. Ukraine’s government-affiliated volunteer force known as the IT Army has rallied its supporters to launch waves of traffic targeting Russian websites, NBC News reported.

Former NSA employee who tried to send documents to Russia should be detained pending trial, prosecutors say

The crimes that former National Security Agency information systems security design Jareh Dalke is accused of — six counts of trying to send defense documents to Russia — are so serious that Dalke should be detained before his trial, prosecutors said in a filing. Dalke was an NSA employee for a month-long period this year; about a month after he left, he tried to contact Russian agents, prosecutors say.

• Dalke sent documents about plans to update cryptographic programs, information about US defense and details about a foreign government’s military capabilities to an undercover FBI agent, prosecutors said.

In a sealed filing, Dalke “appears to admit that he is accused of a serious offense and therefore should only be released on the strictest terms,” ​​the government said in its filing, noting that Dalke “claims that his background in military and law enforcement weighs in his favor.” But prosecutors say he betrayed the United States – apparently out of a mix of “profit and ideology” – and must be held in custody.

A federal court will hold a hearing on Dalke’s detention today. Dalke’s lawyers did not respond to a request for comment.

Britain’s intelligence chief warns about China’s use of technology

GCHQ Director Jeremy Fleming will warn in a speech today that China’s pursuit of digital currencies and satellite systems could allow the country’s government to easily track its citizens, NBC NewsDan De Luce reports. Fleming is set to deliver the China-focused remarks at the Royal United Services Institute think tank.

American and British officials have warned that China’s government poses a significant threat to the United States. In July, FBI Director Christopher A. Wray and MI5 Director General Ken McCallum warned that Western firms and governments are under relentless pressure from the Chinese government.

Fleming also plans to discuss Russia’s invasion of Ukraine, reports De Luce. “Far from the inevitable Russian military victory spouted by their propaganda machine, it is clear that Ukraine’s courageous action on the battlefield and in cyberspace is turning the tide,” Fleming plans to say.

Biden administration previews upcoming cybersecurity agenda

In a fact sheet, the Biden administration previewed upcoming cybersecurity developments:

• This month, the White House will discuss the creation of cybersecurity labels for smart devices with companies, organizations and government partners, according to the fact sheet. The initiative will start with routers and home cameras,
• On Oct. 31 and Nov. 1, the White House will host international partners to “accelerate and expand” the work of the International Counter-Ransomware Initiative, the fact sheet said.

The White House said it would “continue to work with critical infrastructure owners and operators, sector by sector, to accelerate rapid improvements in cybersecurity and resiliency and proactive measures.” The document also provides administration initiatives on quantum cybersecurity, ransomware, and other cybersecurity issues.

Toyota reveals data leak after access key uncovered on GitHub (Bleeping Computer)

Texas Chief Election Officer Speaks Out on Conspiracy Nuts, Death Threats and President Biden’s Legitimacy (Texas Monthly)

Lloyd’s of London says no evidence found of data compromise from cyber attack (Reuters)

• John P. Carlinwho most recently was the principal assistant deputy attorney general, joins the law firm of Paul, Weiss, Rifkind, Wharton & Garrison as a partner and co-leader of the firm’s cybersecurity and data protection practice.

• FS-ISAC is holding its FinCyber ​​Today Summit in Scottsdale, Arizona through Wednesday.
• National Security Adviser Jake Sullivan speaking at an event hosted by the Center for a New American Security and Georgetown University’s Walsh School of Foreign Service on Wednesday at 2 p.m.
• Deputy National Security Adviser Anne NeubergerRep. John Katko (RN.Y.) and Google Cloud Global Director of Risk and Compliance Jeanette Manfra discuss cybersecurity at a Washington Post Live event Thursday at 9.00 am

Thank you for reading. See you tomorrow.