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

Vermont Law Recognizes Digital Currency as a Permissible Investment
Earlier this month, Vermont Governor Phil Scott signed a bill into law which made clear that bitcoin and other digital currencies are considered permissible investments under the state money transmitter licensing requirements.  The new law defines eligible digital currency as “stored value that can be a medium of exchange, a unit of account or a stored value; has an equivalent value in money or acts as a substitute for money; may be centralized or decentralized; and can be exchanged for money or other convertible [digital] currency.”  VT H.182

Florida to Enact Law Adding Digital Currency to Money Laundering Act
The Florida Legislature unanimously approved an amendment to the state’s criminal money laundering statue, which clarifies the statute’s definition of “virtual currency” and makes it a criminal offense to use virtual currency in laundering criminal proceeds.  The legislation is currently with Florida’s governor awaiting signature. Assuming the bill is signed by the governor, the statute is scheduled to take effect July 1, 2017.  HB 1379 Text; HB 1379 History; 4.28.17 Week-in-Review; Source.

West Virginia Lawmakers Complete Bill Criminalizing the use of Cryptocurrencies for Money Laundering
The West Virginia legislature has completed work on a bill that would make it a felony to use cryptocurrency for money laundering.  The purpose of the bill is to “create criminal offenses relating to money laundering.”  WV HB2585 Summary  The bill defines “cryptocurrency” as “digital currency in which encryption techniques are used to regulate the generation f units of currency and verify the transfer of funds, and which operate independently of a central bank.”  The bill also adds the term cryptocurrency into the definition of “monetary instruments.”  Any property or monetary instruments involved with violating the newly proposed bill would be subject to forfeiture. WV HB2585 Text  HB2585 passed both the House and the Senate in West Virginia.  The governor approved the bill, and the House added the statute’s text to Chapter 57 of its Regular Session Acts this week.  WV HB2585 History

Congress Considers Bill Requiring Investigation of the use of Virtual Currency and Terrorism
Representative Kathleen Rice (D-NY) introduced HR 2433 to the House of Representatives this month, a bill that would direct the Secretary of Homeland Security for Intelligence and Analysis to develop and disseminate a threat assessment regarding terrorist use of virtual currency.  The investigation would need to evaluate the actual and potential threat posed by individuals using virtual currency to carry out activities in furtherance of an act of terrorism.

Litigation Updates

New York Files Lawsuit against OCC Fintech Charter
The New York Department of Financial Services (“NYDFS”) filed an independent lawsuit challenging the OCC Fintech Charter.  This lawsuit comes on the heels of another lawsuit challenging the legality of the proposed OCC Charter, filed by the Conference of State Bank Supervisors (“CSBS”).  4.28.17 Week-in-Review.  NYDFS Superintendent Maria T. Vullo announced that lawsuit, filed in NY federal court, challenged “the decision of the Office of the Comptroller of the Currency (OCC) to grant special-purpose national bank charters to undefined ‘fintech’ companies.” The NYDFS complaint seeks “to stop the OCC from granting charters to institutions subject to New York State law that provide financial services to New York consumers based on the OCC’s unidentified and sweeping array of commercial ventures never before authorized or regulated by the OCC.”  The NYDFS release describes the OCC’s charter decision as “lawless, ill-conceived, and destabilizing of financial markets that are properly and most effectively regulated by New York and other State regulators.”  NYDFS Press Release May 12, 2017.  The CSBS issued a statement in support of NYDFS’s lawsuit against the OCC.  CSBS May 12, 2017 Statement.

Congress Questions the IRS’s John Doe Subpoena for Coinbase
Last week, senior Republicans in Congress sent a letter to the Commissioner of the Internal Revenue Service, which suggested that the agency had overstepped its powers by requesting information about the IRS’s strategy for digital currency and recent events surrounding the IRS’s summons to Coinbase.  The letter points out that the IRS issued guidance in 2014 indicating that digital currency would be treated as property for tax purposes, but by 2016, the agency had not yet developed a comprehensive digital currency tax strategy.  In late 2016, however, the IRS issued a summons to the digital currency exchange Coinbase, which required the records of all American Coinbase customers who conducted transactions in convertible digital currency from 2013-2015.  Sen. Orrin Hatch (R-UT), Rep. Kevin Brady (R-TX), and Rep. Vern Buchanan (R-FL) signed the letter, where the legislators “strongly” questioned “whether the IRS has actually established a reasonable basis to support the mass production of records for half a million people.”  Fearing that the summons sets a “dangerous precedent for companies facilitating virtual currency transactions that could be subject to a similar summons,” the legislators also remarked that based “on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals.”  Members of the Senate Committee on Finance and House Committee on Ways and Means requested a briefing from the IRS on these issues.  Letter from Congress to IRS, dated May 17, 2017; 2.3.2017 Week in Review; 12.2.2016 Week in Review.

Fintech Updates

CFTC Announces Plans to open an Office for Fintech Innovation
The U.S. Commodity Futures Trading Commission (“CFTC”) announced its plan to open LabCFTC.  This office will be the “focal point for the CFTC’s efforts to promote responsible Fintech innovation and fair competition for the benefit of the American public.”  LabCFTC will provide a dedicated point of contact for Fintech innovators to engage with the CFTC, learn its regulatory framework, and obtain feedback and information about implementing technology ideas into the market based on existing law, CFTC regulation, and policy.  To do this, the CFTC plans to:   proactively engage with the innovator community to better understand how innovations interact with the regulatory and supervisory framework, collaborate with the industry and market participants to coordinate responsible innovation, participate in studies to foster responsible innovation, cooperate with financial regulators at home and overseas, monitor trends to ensure the regulatory framework does not stifle innovation, as well as engage with academics, students, and professionals to share information about the industry.  LabCFTC will be located in New York and is intended to “bridge the gap” between today’s regulations and regulations for the 21st century for today’s digital markets.   LabCFTC


International Developments

Dubai Regulators Announce Special Testing License for Fintech Startups
The Dubai Financial Services Authority (“DFSA”) released plans detailing its Innovation Testing License (“ITL”) on Wednesday.  Under this plan, Fintech startups in Dubai will be permitted to test their products under a restricted financial services license for 6-12 months, a period which can be extended by the DFSA.  Successful applicants would then be required to obtain a full financial services license to continue formally operating, and firms that fail to meet the required outcomes will have to cease activities.  This new license creates, in essence, a regulatory sandbox that will permit startups to experiment with new ideas with a temporary exemption from the standard regulatory requirements that regulated companies face.  Source; Source

Indian Government Requests Public Comment on Virtual Currency Regulation
The Indian Government invites constituents to comment and make suggestions on the use of virtual currency within India. The Indian Ministry of Finance made the announcement via its Twitter account on May 20, 2017, which invited public involvement in the future of virtual currency regulation.  The Ministry is accepting input until May 31 and is specifically looking for input on the following questions: (1) whether virtual currencies should be banned, regulated or observed? (2) if virtual currencies should be regulated, how should India treat consumer protection, promote the development of virtual currency, and which institution should monitor? And (3) if virtual currencies should not be regulated, how should they be self-regulated effectively  and what measures should be taken to ensure consumer protection?  Since 2013, the Indian government has issued several warnings to the public to be aware of the risks of virtual currencies. However, since the country has been demonetizing, many citizens have been using virtual currencies as an alternative to the Rupee.  Source

Regulators in Gibraltar Propose New Government Regulatory Framework for Digital Currency
The government of Gibraltar announced its goal to establish itself as a hub of the Fintech sector and that it has made a public commitment to widely consult with the private sector and other interested parties to achieve that goal.  The HM Government of Gibraltar, Ministry for Commerce, issued a paper entitled Proposals for a DLT Regulatory Framework, which explores a regulatory approach for the country to take that (1) provides regulatory certainty while meeting the challenge of regulating firms using the rapidly evolving technology, (2) permits firms to grow and adapt while ensuring it does so safely, (3) protects consumers and Gibraltar’s reputation, (4) leverages Gibraltar’s standing as a quality financial center, (5) does not compromise Gibraltar’s regulatory environment, (6) supports new firms seeking to start up in Gibraltar, (7) encourages overseas enterprises to establish operations in Gibraltar, and (8) recognizes the need for “speed to market” in the authorization process of these firms.  The paper establishes nine principles the country will require DLT firms to follow to ensure that the plan’s regulatory outcomes are achieved.  The Minister for Commerce, Hon. Albert Isola, stated that he was delighted to publish the proposals for widespread public consumption and that he looked forward to receiving comments from the public.  Public comments on the plan are due by June 6, 2017.  Press Release; Proposals for a DLT Regulatory Framework

For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations