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.
Alabama’s New Virtual Currency Regulations
This month, the Alabama Monetary Transmission Act officially replaced the 1961 “Sale of Checks Act.” The bill was passed by the Alabama Legislature in May. The new Money Transmitter Act covers the regulation of traditional money transfers to virtual currency. It also provides new tools for law enforcement to track international financial crimes. Alabama SB 173 / HB 215 (Regular Session 2017).
Pres. Trump Signs the “Countering America’s Adversaries Through Sanctions Act,” Which Will Leverage Technology to Improve Efforts To Stop the Financing of Terrorism
Congress passed a bill, which the President signed, earlier this month to provide congressional review and to counter aggression by the Governments of Iran, the Russian Federation, and North Korea. The law introduces strategies for countering terrorist threats from these countries and issues sanctions on these countries to deter terrorist activity and financing. In the new law, Congress also directs the executive branch to conduct an investigation and provide a report related to methods of terrorist funding. Specifically, the law articulates a goal to develop a national strategy for combatting terrorism and other illicit financing. To develop this strategy, the executive branch is responsible to provide Congress with a report within the next year that evaluates (among other things) threats to the U.S. related to illicit financing of terrorism, existing efforts to minimize those threats, the role of the private financial sector in preventing illicit finance, and discusses ways to enhance intergovernmental cooperation to combat illicit finance. The report will include a “discussion of and data regarding trends in illicit finance, including evolving forms of value transfer” including cryptocurrencies. Congress plans that the analysis should include current and developing ways to leverage technology to improve the effectiveness of efforts to stop the financing of terrorism and other forms of illicit finance, including better integration of open-source data. Public Law No.: 115-44
Former US Secret Service Agent Pleads Guilty to Money Laundering
A former special agent, Shaun W. Bridges, with the U.S. Secret Service pleaded guilty this week to charges of money laundering in the Northern District of California. Bridges was assigned to the Baltimore Silk Road Task Force from 2012-2014. His responsibilities on this task force included conducting forensic computer investigations in an effort to locate, identify, and prosecute targets involved with the covert online marketplace for illicit goods. Bridges pleaded guilty in 2015 to one count of money laundering and one count of obstruction of justice related to his theft and diversion of over $800,000 in digital currency, which he took control of in his role on the task force. This new count of money laundering is related to Bridges’ theft of an additional 1,600 bitcoin—taken from a digital wallet belonging to the U.S. government. DOJ Press Release 8.16.2017
The SEC Suspends Trading of Shares of an OTC-Traded Technology Company Due To Questions About the Company’s Public Communications
Last week, pursuant to Section 12(k) of the Exchange Act, the U.S. Securities and Exchange Commission (“SEC”) temporarily suspended trading of shares in an OTC-traded technology company. The SEC issued the order as a result of questions surrounding the accuracy of the company’s assertions in press releases to investors concerning, among other things, the activities of the company with respect to business plans in the telecommunications industry and plans for an initial coin offering (“ICO”). The SEC issued an order of suspension of trading, which noted substantively that the SEC considered the securities of CIAO Group, Inc. (CIK No. 0001489039) to have a “lack of current and accurate information.” The company’s trading suspension is scheduled to occur from August 10, 2017 through August 23, 2017. 8.9.17 SEC Order. 8.9.17 SEC Release No. 81367.
Mexico insists that NAFTA Talks Must Include Discussion of Fintech
This week, a negotiator for Mexico noted that any talks to renegotiate the North American Free Trade Agreement (“NAFTA”) need to include a discussion about the opportunities in new financial services. The negotiator pointed to Fintech’s rapid growth in Mexico. Renegotiations of NAFTA started this week at US President Trump’s request. Representatives from the U.S., Canada, and Mexico are in Washington D.C. for the discussions and the three sides are looking to modernize the agreement to include provisions for transparency, e-commerce, and other technological developments that have occurred since entering into the original Agreement 23 years ago. Reuters
Singapore Takes a Position on Digital Token and Virtual Currency Related Investments
Last week, the Monetary Authority of Singapore (“MAS”) and Commercial Affairs Department (“CAD”) issued a joint statement, which advises consumers on the perceived risks associated with digital token and virtual currency related investment schemes. The statement advises that ICOs are vulnerable to money laundering and terrorist financing risks, tokens can represent ownership or a security interest over and issuer’s assets or property, and digital tokens may represent a debt owed by an issuer and be considered a debenture. Singapore does not yet regulate token sales, but where digital tokens fall within the definition of securities, issuers of such tokens would be required to follow securities regulation and registration requirements. MAS Media Release 8.1.2017. Business Times.
Brazil Announces Plans To Regulate Crowdfunding via ICO
Last month, Brazil’s Securities Commission, the Comissão de Valores Mobiliários (“CVM”), published initial legislation instruction (Instrução CVM No. 588) regulating crowdfunding via ICOs. The instructions state that ICOs are the equivalent of a crowdfunding platform and should register with the CVM. Companies that use the platform are then exempt from registration with the CVM. Some commentators have noted that the instruction is “highly limiting to the exercise of crowdfunding in Brazil” and that “if a company in Brazil wants to conduct an ICO, it will have to register with the CVM, even if the amount to be collected is lower than the limit” established by the instruction. Brazilian crowd funding platforms will also need to comply with numerous requirements outlined in CVM No. 588, including requirements regarding information available to investors and requirements on the offering of securities. The Instruction does not regulate fundraising for offering gifts, rewards, goods, or services. CVM Instruction 588. Source.
National Bank of Ukraine Issues Statement About Digital Currency Regulation
The National Bank of Ukraine (“NBU”), Ukraine’s central bank, issued a statement about the country’s regulations as they relate to digital currencies and the legal status of cryptocurrencies. This clarification comes on the heels of several arrests of individuals for allegedly illegally mining Bitcoin earlier this month. The NBU’s position is that only one currency may be used in the Ukraine at the present, and that currency is hryvnia. No other currency may be used as a form of payment in Ukraine. This position is a point of controversy in the Ukraine. Source. Guidance.
Australian Government Announces Plan to Regulate Digital Currencies
This week, the Minister for Justice in Australia issued a press release announcing the first state of reforms to strengthen Australia’s Anti-Money Laundering and Counter-Terrorism Financing Act. The Bill is intended to achieve several goals including: (1) closing a regulatory gap by bringing digital currency exchange providers under the authority of the Australian Transactions and Reporting Analysis Centre (“AUSTRAC”), (2) strengthening AUSTRAC’s investigation and enforcement powers, (3) increasing police and customs officers’ search and seizure powers at the border, and (4) providing regulatory relief to industry through the deregulation of low-risk industry sectors. The Minister tried to balance the threat of organized crime and terrorism with ensuring excessive regulation does not hinder the country’s financial sector. Press Release 8.17.2017
For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.