Weekly Focus:

  • OCC Announces a New Acting Comptroller of the Currency
  • House Bill Would Require a Study on the Regulation and Use of Blockchain Technology in the United States
  • IRS Reportedly Seeking Private Contractors in Connection with Virtual Currency-Related Tax Returns
  • US Senate Subcommittee Raises Blockchain as Option for Senate Voting During Times of Crisis
  • Private Party Brings Suit against Crypto-Products Trading Platform for Alleged Violations of RICO and the CEA
  • Bank of France Provides Update on Central Bank Digital Currency Experimentation
  • FATF Issues Report on COVID-19-Related Money Laundering and Terrorist Financing Risks and Policy Responses
  • Brazilian Agency Re-opens Investigation into Banks’ Treatment of Virtual Currency Firms
  • Reports: Iran Takes Several Actions Related to the Regulation of Virtual Currencies

US Developments

Federal and State Regulatory Developments

OCC Announces a New Acting Comptroller of the Currency

On May 21, 2020, current Comptroller of the Currency Joseph M. Otting announced that he is stepping down from office on May 29, 2020. Upon his departure, First Deputy Comptroller and Chief Operating Officer Brian P. Brooks will become acting comptroller of the currency. Mr. Brooks joined the OCC on April 1, 2020, after serving as chief legal officer of a company that is a digital currency wallet and platform. Per a U.S. Department of the Treasury (Treasury) press release, Mr. Brooks has been involved in several OCC rulemakings and helped to connect banks and financial technology companies in a series of listening sessions related to the delivery of Paycheck Protection Program loans.

A link to the Treasury press release can be found here.

House Bill Would Require a Study on the Regulation and Use of Blockchain Technology in the United States

On May 19, 2020, Representative Brett Guthrie (R-KY) introduced legislation in the U.S. House of Representatives that is entitled the “Advancing Blockchain Act” (the Bill). If enacted into law, the Bill would require the U.S. Department of Commerce (Commerce) and the Federal Trade Commission (FTC) to conduct a study within two years on the use and regulation of blockchain technology in the United States. The study would be required to evaluate several topics, including:

  • The industry sectors that develop and use blockchain technology as well as the advantages and disadvantages of the wide-spread adoption of blockchain technology.
  • How blockchain technology may be used to increase market competition in the highlighted industries, increase individual’s data privacy and enhance data security, better secure monetary transactions, as well as any other use that may be beneficial.
  • Survey federal agencies’ interest related to blockchain technology, including federal agency activities and claimed jurisdictions related to blockchain technology.
  • Survey other countries’ national strategy on blockchain technology to determine where the United States ranks with respect to the development and adoption of blockchain technology.

Upon the completion of the study after the two-year period, Commerce and the FTC would be required to submit the study to both the U.S. House of Representatives and the U.S. Senate within six months. As of May 21, 2020, the Bill has been referred to the House Committee on Energy and Commerce, as well as the House Committees on Science, Space and Technology, and Foreign Affairs.

A link to the Bill’s summary page can be found here; a link to the Bill’s press release can be found here.

IRS Reportedly Seeking Private Contractors in Connection with Virtual Currency-Related Tax Returns

The Internal Revenue Service (IRS) is reportedly seeking private contractors to aid in the audits of virtual currency-related tax returns. Per a purported recipient of the IRS’s solicitation, the IRS is currently seeking to enter into a small number of single-case contracts as pilots with a goal of eventually pursuing a larger multi-case contract. Under the pilot contract, the contractor would assist the IRS with five key services: (1) data ingestion and staging; (2) report preparation, summary explanation, and data discrepancy analysis; (3) error resolution and report revision; (4) meeting participation and trial assistance; and (5) trial testimony. As apparently stated in the IRS’s Statement of Work for the pilot contracts, the transactions that are subject to the arrangement would occur on various commercial digital asset exchanges or are reflected on public ledgers.

A link to a purported copy of the IRS’s solicitation can be found here.

US Senate Subcommittee Raises Blockchain as Option for Senate Voting During Times of Crisis

At the end of April, the U.S. Senate’s Permanent Subcommittee on Investigations (PSI) held an online roundtable on the continuity of Senate operations and remote voting during times of crisis. The PSI staff prepared a memorandum for the roundtable, and in it, noted that while Congress is designed to function in-person, neither chamber of Congress has contingency plans that would allow the legislative process to continue remotely in a time of crisis. Per the PSI staff memorandum, the COVID-19 pandemic has required Congress to consider how best to operate remotely if necessary and how to do so securely. Of prominent concern is the issue of remote voting. The PSI staff memorandum reviewed the methods utilized by various states and in other countries as well as evaluated differing technological options including blockchain technology. Of the benefits explained in the PSI staff memorandum, blockchain could enable the Senate to both transmit a vote securely and verify the correct vote, which would potentially increase vote transparency and reduce incorrect vote tallies. The PSI staff memorandum also notes potential risks with blockchain voting, including the risk that majority control of the blockchain could fall into the wrong hands, especially in the context of the small size of the Senate.

A link to the PSI staff memorandum can be found here.

Litigation Developments

Private Party Brings Suit against Crypto-Products Trading Platform for Alleged Violations of RICO and the CEA

A private party filed a civil suit on May 18, 2020, in the U.S. District Court for the Northern District of California against a peer-to-peer crypto-products trading platform for allegedly conducting the enterprise’s affairs in a matter that violates the Racketeer Influenced and Corrupt Organizations Act (RICO) and for alleged cryptocurrency market manipulation under the Commodity Exchange Act (the CEA). With regard to the RICO claims, the private party alleges that the platform and its related defendants operated an unlicensed money transmitting business, which in turn constituted a pattern of racketeering activity. With regards to the CEA claims, the private party alleges that the platform and its related defendants sought to act recklessly with regards to affecting the prices of bitcoin futures contracts and cash bitcoin. The plaintiff is seeking monetary damages, among other relief.

A link to the complaint can be found here (Note: a paywall may apply). As of May 21, 2020, the defendants had yet to file an Answer.

International Developments

Bank of France Provides Update on Central Bank Digital Currency Experimentation

The Bank of France issued a press release on May 20, 2020, providing an update on its 2020 experiment of using a blockchain developed by its teams to experiment with the use of a central bank digital currency in order to settle an issue of digital financial securities carried out by the Société Générale. The Bank of France said that a test on May 14, 2020, was successful, which, according to a report, involved Société Générale issuing 40 million Euro worth of covered bonds as security tokens, which were then settled using the Bank of France’s digital currency. The Bank of France expects to begin other experiments to test the use of a central bank digital Euro in interbank regulations.

A link to the Bank of France’s native language press release can be found here. A link to the news report can be found here.

FATF Issues Report on COVID-19-Related Money Laundering and Terrorist Financing Risks and Policy Responses

In May 2020, the Financial Action Task Force (FATF), which is a global money laundering and terrorist financing inter-governmental body that sets international standards, issued a report on the risks and policy responses relating to COVID-19-related money laundering and terrorist financing issues. The report discusses the evolving money laundering and terrorist financing picture, the current COVID-19 impact on anti-money laundering (AML) and counter-terrorist financing (CFT) regimes, and potential AML/CFT responses for consideration. FATF cites increased financial volatility among the risks raised by COVID-19 and lists the use of virtual assets for illicit purposes as one example of potential increased financial volatility.

A link to the FATF report can be found here. Additional discussion of FATF’s report can be read here on our Fintech Report.

Brazilian Agency Re-opens Investigation into Banks’ Treatment of Virtual Currency Firms

An advisor for Brazil’s Administrative Council for Economic Defense (CADE) submitted a Decision Order on May 13, 2020, to CADE’s executive body seeking to reopen an existing administrative inquiry into a complaint filed by the Brazilian Association of Cryptocurrencies and Blockchain (ABCB) against six Brazilian banks. ABCB had alleged in its complaint that the Brazilian banks unlawfully “refused to contract” through the unilateral closing of an existing account or through the refusal to open a new account, which had anti-competitive effects. The Brazilian banks had not refuted the alleged facts but argued that they were justified in their actions because of legal uncertainties related to Brazil’s regulation on the activity of cryptocurrency brokers, among other reasons. The General Superintendent of CADE had decided to close the administrative inquiry on December 23, 2019. In her May 13, 2020, Decision Order, CADE’s advisor argued that the administrative inquiry should be reopened and per news reports, the CADE executive body voted to approve such a reopening on May 20, 2020.

A native language link to the May 13, 2020, Decision Order can be found here and a link to a news report on CADE’s May 20, 2020, vote can be found here. The landing page for the administrative file for CADE’s inquiry can be found here.

Reports: Iran Takes Several Actions Related to the Regulation of Virtual Currencies

Per recent news reports, in May 2020, the Iranian Parliament has proposed to include virtual currency under its existing “currency smuggling” and foreign currency exchange regulations. The proposal would reportedly subject any virtual currency deemed to be a foreign currency to existing prohibitions on the unauthorized transfer of currency in and out of Iran. In addition, it would reportedly require virtual currency exchanges that buy, sell, or remit virtual currencies to be licensed by the Iranian Central Bank. Finally, it would reportedly require licensure with the Iranian Central Bank in order to carry out foreign exchange brokerage services within Iran for foreign persons.

Per additional news reports, also in May 2020, the Iranian president spoke with officials from the Iranian Central Bank, the energy department, and the information and communication technology ministries. Of the topics discussed, the Iranian president reportedly mandated those Iranian agencies to devise a national strategy for virtual currency mining, which would address regulation and mining revenue.

A link to a news report on the Iranian parliament’s proposal can be found here, and a link to the Iranian president’s statement can be found here.