NFT Market Research Published; Crypto issues addressed by the FDIC, US representatives and foreign regulators; DOJ Targets Crypto Fraud Scheme | Baker Hostetler

This week, US Representative Tom Emmer published a letter to Treasury Secretary Janet Yellen requesting clarification on the Office of Foreign Assets Controls (OFAC) recent sanctions against the cryptocurrency mixing service Tornado Cash. Emmer described the sanctions as the “first of their kind” in that OFAC sanctioned the protocol’s smart contracts rather than a natural person or entity. In his letter, Emmer addressed due process and privacy concerns, writing that “sanctioning neutral, open source, decentralized technology presents a host of new questions, affecting not only our national security, but the right to privacy of all American citizens.” This letter comes just weeks after the arrest in the Netherlands of a technology developer allegedly involved in Tornado Cash.

In a press release published last week, leaders of the House Energy and Commerce Committee announced that they had sent letters to four US-based cryptocurrency mining companies, seeking additional information about the environmental impact and energy consumption of proof-of-work (PoW) mining. The letter raises concerns about the effect of mining on both climate change and local power grids. According to the letter, “[w]hile blockchain technology is emerging as a potentially important tool to combat climate change, increasing online demand and burning more fossil fuels to power PoW crypto plants only serves to undermine the potential climate benefits of blockchain technology and hold us back from achieve climate pollution. reduction target.” The companies have until 17 September to respond to the committee’s requests for information.

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Foreign regulators issue crypto guidance, act against unregistered VASPs

Of Robert A. Musiala Jr.

Last week, the European Central Bank (ECB) published a press release addressing “crypto-asset activities and services” in the EU. According to the press release, “the completion of several regulatory initiatives at the European and international level[s] … will set out the broader regulatory framework under which crypto activities are permitted and how banks will manage the risks they pose.” The press release notes, among other things, that in the evaluation of banking activities involving cryptocurrencies, the ECB will focus on risks related to cyber security, the use of third-party providers and anti-money laundering work/fighting the financing of terrorism. According to the press release, the ECB is assessing “banks’ digital transformation, including the role of crypto-technologies, which will result in horizontal analysis by the end of 2022.”

The South African Reserve Bank recently published guidance “to inform banks and controlling companies on practices relating to the effective implementation of adequate anti-money laundering and counter-financing of terrorism (AML/CFT) controls in relation to crypto-assets (CAs) and crypto-asset providers (CASPs ).” The guidance seeks to further implement recommendations from the Financial Action Task Force.The guidance defines, among other things, “encryption means” and “cryptoasset service provider”, addresses a risk-based approach to identifying and assessing CA and CASP risks, and emphasizes the importance for banks to monitor client transaction activity.

Last week, South Korea’s Financial Intelligence Unit (KoFIU) published a press release warning that 16 virtual asset service providers (VASPs) are targeting South Korean consumers without proper registration. According to the press release, KoFIU has informed the relevant financial regulators in their respective countries about the breaches and has taken steps to block South Korean consumers’ access to the unregistered VASPs, including steps to block transfers of virtual assets to and from the unregistered entities.

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DOJ Targets Cryptocurrency Fraud, Report Cites Recent Cryptocrime Trends

Of Jordan R. Silversmith

According to a press release published this week by the US Department of Justice (DOJ), three people from Miami have been arrested for their involvement in a scheme that used cryptocurrency to defraud US banks. According to the indictment, the three defendants used stolen identities to purchase more than $4 million in cryptocurrency and then falsely claimed that the cryptocurrency transactions were unauthorized. This tricked US banks and a leading cryptocurrency exchange into reversing these transactions and depositing the bad money into the defendants’ bank accounts. According to the press release, the defendants’ scheme resulted in US banks processing more than $4 million in fraudulent transaction reversals and the cryptocurrency exchange losing more than $3.5 million in cryptocurrency. The defendants face multiple charges of fraud and conspiracy to commit fraud, and face over 30 years in prison.

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