FinCEN Is Watching ICOs for BSA Violations

In a recently published letter to the Senate Finance Committee, FinCEN confirmed that when an ICO token is a “convertible virtual currency,” administrators or exchangers of the token would be “money transmitters” under existing FinCEN regulations and interpretations.

Under the Bank Secrecy Act (BSA), a money transmitter must register with FinCEN as a money services business (MSB) and implement a risk-based anti-money-laundering (AML) compliance program. Pursuant to the BSA and its implementing regulations, an appropriate AML compliance program will include certain mechanisms for meeting the MSB’s transaction monitoring, reporting, and recordkeeping obligations—obligations that, in effect, require the MSB to know your customer. FinCEN’s letter to the Senate Finance Committee indicates that the agency is closely monitoring ICO tokens, as well as the developers and trading platforms that are issuing and exchanging ICO tokens, for BSA violations and trends or risks of associated money laundering, terrorist financing, and other financial crimes. Continue Reading

White Paper – Smart Contracts: Revisiting Use Cases and Key Legal Issues

We are pleased to release an updated edition of our smart contracts white paper, originally published in May 2017.   The updated white paper surveys the current academic and industry landscape related to smart contracts, and discusses the key legal issues surrounding smart contract applications. Authors of the white paper are Dax Hansen, Partner and Chair of the Blockchain and Digital Currency and Fintech industry groups, Carla Reyes, Visiting Assistant Professor of Law at the Stetson University College of Law and Faculty Associate, Berkman Klein Center for Internet & Society at Harvard University, and Laurie Rosini, Associate with the Blockchain and Digital Currency industry group.

The paper consists of four sections:

  • Updated introduction to DLT-based smart contracts;
  • A review of current academic and industry literature on smart contracts, which includes industry initiatives such as the Accord Project, OpenLaw, the Stanford Computable Contracts Initiative and the Smart Contract Alliance, and State legislative efforts related to smart contracts;
  • Emerging use cases touching on different legal regimes; and
  • Updated risk mitigation checklist for businesses developing applications using smart contracts.

Click here to download the updated white paper.

Blockchain Week In Review, February 5th – 16th

Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.

U.S. Developments

Regulatory Updates

CFTC Chairman Gives Testimony Before the U.S. Senate Agriculture, Nutrition, and Forestry Committee
On February 15, 2018, Chairman J. Christopher Giancarlo of the Commodity Futures Trading Commission (“CFTC”) provided testimony related to the CFTC’s plans to regulate virtual currencies and how this new technology impacts the agricultural markets before the United States Senate Agriculture, Nutrition, and Forestry Committee.  Specifically, Chairman Giancarlo quoted Chairman of the Securities & Exchange Commission (“SEC”) Jay Clayton to support the argument that “virtual currency presents complex challenges for regulators.”  Giancarlo outlined that the CFTC’s work on virtual currencies is being guided by six broad elements: “(1) staff competency; (2) consumer education; (3) interagency cooperation; (4) exercise of authority; (5) strong enforcement; and (6) heightened review of virtual currency product self-certifications.” As part of satisfying these elements, the CFTC has introduced LabCFTC, issued an “unprecedented amount of public educational materials on virtual currencies,” and collaborated with the SEC, state banking regulators, the IRS, and the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) to ensure that the regulators are aware of the CFTC’s approach towards virtual currencies.  Chairman Giancarlo noted that while the CFTC has determined that virtual currencies such as Bitcoin meet the definition of “commodity,” it has concluded that Continue Reading

Open Session of the U.S. Senate’s Committee on Banking, Housing and Urban Affairs Hears Joint Testimony from Heads of the SEC, CFTC

On February 6, 2018, the United States Senate Committee on Banking, Housing and Urban Affairs conducted a hearing entitled “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission.” Hearing. The Chairman of the U.S. Securities and Exchange Commission (SEC), Jay Clayton, and the Chairman of the U.S. Commodity Futures Trading Commission (CFTC), J. Christopher Giancarlo, provided testimony. Read a full article summarizing the key takeaways from the written testimonies and the testimony and questions on our sister blog, The Fintech Report.

Blockchain Week in Review January 20th – February 2nd

Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.

U.S. Developments

Regulatory Updates

CFTC and SEC Chairmen Publish Joint Op-Ed
Following a joint meeting last month, SEC Chairman Jay Clayton and CFTC Chairman J. Christopher Giancarlo published a joint op-ed in the Wall Street Journal reaffirming both agencies’ mutual commitment to stricter enforcement in the distributed ledger and cryptocurrency industry.  Chairmen Clayton and Giancarlo wrote that they will continue to monitor initial coin offerings (ICOs) and continue to crackdown on unregistered sales of coins deemed to be securities, in addition to fraudulent and other criminal activities. See WSJ 1.24.18

In a sign of continued collaboration, SEC Chairman Clayton and CFTC Chairman Giancarlo will testify on the topic of cryptocurrency regulation before the Senate Committee on Banking, Housing, and Urban Affairs. The hearing is scheduled on February 6 at 10:00am ET.  The live cast of the hearing can be accessed here:  See Coindesk 1.31.18

Congress Holds Fintech Hearing
The U.S. House of Representatives Subcommittee on Financial Institutions and Consumer Credit held a hearing this week to discuss consumer protection in the context of Fintech innovation.  The hearing focused on addressing Continue Reading

Blockchain Week in Review January 8th – January 19th

Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.

U.S. Developments

Regulatory Updates

CFTC and SEC Enforcement Directors Issue Joint Statement Regarding Virtual Currency Enforcement Actions
This morning, the Enforcement Director of the U.S. Commodity Futures Trading Commission (“CFTC”), James McDonald, and the Enforcement Co-Directors of the U.S. Securities and Exchange Commission (“SEC”), Stephanie Avakian and Steven Peikin issued a joint statement addressing virtual currency enforcement actions (collectively “the Agencies”).  In the statement, Continue Reading

CFTC Flexes Its Regulatory Muscle in a Case Involving a Virtual Currency

Just like the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) is actively policing the virtual currency market.  On January 24, 2018, the CFTC announced an enforcement action against two individuals and a company, My Big Coin Pay, Inc., for fraudulently offering the sale of a “fully functioning” virtual currency. Press Release, CFTC Charges Randall Crater, Mark Gillespie, and My Big Coin Pay, Inc. with Fraud and Misappropriation in Ongoing Virtual Currency Scam (Jan. 24, 2018), Reading

OFAC Warns that Venezuela’s Proposed Digital Currency May Violate U.S. Sanctions

On January 19, 2018, the U.S. Office of Foreign Assets Control (OFAC), in response to a question, warned that a U.S. person’s acquisition of, or dealing in, a cryptocurrency that Venezuela intends to issue in the future may violate OFAC sanctions.  In an effort to refinance the country’s soaring debt, the President of Venezuela, Nicolás Maduro, announced a plan to offer 100 million “petros”—backed by barrels from the state-run oil company.  Based on a Venezuelan oil price of $60 a barrel, the offering would amount to around $6 billion.  Although the currency will be backed by oil, it apparentlycannot be traded for oil.  Venezuela has not indicated the exchange on which the petros will be released, but it has indicated that traders will have to register with the Venezuelan government.

This proposed currency is designed to enable Venezuela to avoid the impact of U.S. sanctions.  On August 24, 2017, President Trump signed Executive Order 13808 forbidding Americans from making new debt and equity transactions with Petróleos de Venezuela, S.A., the state-run oil company that largely underwrites the national budget. The sanctions also prohibited transactions in bonds owned by the Venezuelan government and any dividend payments to the Venezuelan government.

On January 19, 2018, OFAC warned that a U.S. person who deals in Venezuela’s prospective cryptocurrency may violate U.S. sanctions because the currency appears to be an extension of credit to the Venezuelan government.  More specifically, OFAC’s response was as follows:

  1. In December 2017, Venezuelan President Nicolas Maduro announced plans for the Government of Venezuela to launch a digital currency.  According to public reporting, Maduro indicated that the digital currency would carry rights to receive commodities in specified quantities at a later date.  Were the Venezuelan government to issue a digital currency with these characteristics, would U.S. persons be prohibited from purchasing or otherwise dealing in it under E.O. 13808?

A currency with these characteristics would appear to be an extension of credit to the Venezuelan government.   Executive Order 13808 prohibits U.S. persons from extending or otherwise dealing in new debt with a maturity of greater than 30 days of the Government of Venezuela.  U.S. persons that deal in the prospective Venezuelan digital currency may be exposed to U.S. sanctions risk. [1/19/2018]


Join us in Chicago – Understanding the Blockchain & Tokenization Revolution – February 15!

Understanding the Blockchain & Tokenization Revolution

Thursday, February 15, 2018
5:30 p.m. – 10:00 p.m.
Registration/doors open at 5:00 p.m.
There is no charge to attend.

Perkins Coie, Chicago Office
131 South Dearborn Street, Suite 1700
Chicago, IL 60603

Click here to register.

Join the blockchain teams from Perkins Coie, bloq, and the Chicago Blockchain Center for two informative sessions on blockchain. Pizza and adult beverages will be served.

5:00 p.m. Doors open for registration
5:30 p.m. – 6:30 p.m. – Blockchain 101
6:45 p.m. – 8:00 p.m. – Tokens and Tokenization – Yesterday, Today and Tomorrow
8:00 p.m. – 10:00 p.m. – Networking reception

If you’re new to blockchain, come early for Blockchain 101
What is blockchain and what makes it revolutionary? This session is geared toward professionals interested in learning the basics of blockchain. Learn the basics of blockchain & virtual currency, why it’s generating so much interest, and how companies across multiple industries are using this cutting edge technology. No technical background is needed as we will comprehensively breakdown the potential impact blockchain will have on how we organize and interact economically and socially. Now that you know the basics, stick around and join us for the next session.

Presented by:
Jim Coughlan, Partner, Perkins Coie
Laurie Rosini, Associate, Perkins Coie

If you know the basics, join us at 6:45 p.m. for an advanced session on tokenization.

Tokens and Tokenization – Yesterday, Today and Tomorrow  
Tokenization is receiving attention around the world with the popularity of Token Sales, often known as Initial Coin Offerings (ICOs). However, tokenization built on blockchain is currently under-utilized in terms of its ultimate potential.

In this session, we will discuss how the growing popularity of blockchain, cryptocurrencies and distributed systems is giving rise to new and disruptive business models and technology enterprises, and answer the following questions:

  • What is a token, how is it created and what does it mean? Is it valuable on an enterprise scale?
  • What is a token sale and where does the current regulatory landscape look like?
  • What is the future of blockchain and tokenization?

Presented by:
Marcelo Halpern, Partner, Perkins Coie
Matthew Roszak, Co-Founder and Managing Partner, SilkRoad Equity (bloq, Tally Capital and Blockchain Capital)
Jennifer O’Rourke, Blockchain Business Liaison, State of Illinois, The Illinois Blockchain Initiative

For more information, please contact Michelle O’Connor.

Click here to register.

SEC Takes Aim at Initial Coin Offerings Again

The SEC is targeting ICOs once again, but it is now adding more focus through its new Enforcement Division Cyber Unit.

  • In its enforcement settlement with Munchee, Inc., the SEC looked past the utility of a “utility token” in its “securities” analysis and instead focused on aspects such as marketing and the existence of a secondary market for the tokens.
  • SEC Chairman Jay Clayton issued a statement reinforcing that facts matter for each token sale, but also provided a warning that when things sound “too good to be true,” they usually are.

In this update, we detail the background behind the SEC’s Munchee Order and its new Cyber Unit, share some lessons from the order and consider the implications of these renewed efforts. Read the full article on