- Securities Fraud on the Dark Web Using Bitcoin
- Germany Securities Settlement Bridge
- South Korea Implements AML Regulations
- India’s New Crypto Reporting Regulations
- Bank of Jamaica Announces Central Bank Digital Current Pilot Program
US Regulatory Developments
Securities Fraud on the Dark Web Using Bitcoin
For the first time, the Securities and Exchange Commission (SEC) has brought an action against an individual, James Roland Jones, in connection with activities on the dark web that the SEC asserts constituted securities fraud under 10(b) and 10b-5 of the Securities Act of 1933, as amended. Mr. Jones is accused of accepting Bitcoin in exchange for selling falsified information on dark web marketplaces. The SEC’s March 18, 2021 complaint describes the attempts by Mr. Jones to first obtain material nonpublic information about the public securities markets, and then after failing to do so, sell false nonpublic information about the public securities markets. Although Mr. Jones did not actually obtain nonpublic information, the SEC asserts that he did successfully sell a false tip for which he received $20,000 in Bitcoin as compensation. Mr. Jones has already pled guilty to criminal charges brought by the United States Attorney for the Middle District of Florida, to which Mr. Jones has pled guilty.
International Regulatory Developments
Germany Securities Settlement Bridge
Deutsche Bundesbank, the independent central bank of the Federal Republic of Germany, has announced the successful development and test of a cross-platform settlement technology that permits the settlement of securities transactions between distributed ledger technologies (DLT) and the traditional German financial system. This “technological bridge” between blockchain technology and Germany’s established payment systems permits settlement “in central bank money with no need to create central bank digital currency.” Deutsche Bundesbank Press Release.
In the cross-platform test, Germany’s Finance Agency issued a 10-year federal bond on the DLT system. The DLT then tracked both the primary and secondary market transactions and communicated directly with the Trans-European Automated Real-time Gross Settlement Express Transfer System (TARGET2), the Eurosystem’s large-value payment system to trigger the transfer of assets. The digital “bridge” allows for transactions on the DLT trigger chain operated by Deutsche Bundesbank to automatically trigger transactions on TARGET2. These protocols rely on a delivery-versus-payment mode of settlement, which prevents the transactions from being processed until all parties have confirmed the transaction.
This development comes in light of an ongoing debate in Europe over the development of a central bank digital currency. Burkhard Balz, the member of the Bundesbank Executive Board responsible for the Directorate General Payments and Settlement Systems, has asserted that this technological development can be adopted by the Eurosystem in a relatively short time frame compared to the development of a central bank digital currency.
South Korea Implements Anti-Money Laundering Regulations
On March 25, 2021 South Korea’s Financial Services Commission (FSC) implemented amendments to its Act on Reporting and Using Specified Financial Transaction Information (Specific Financial Transactions Act) directed at virtual asset service providers operating in South Korea. These amendments mandate that virtual asset service providers (VASPs), including all “virtual asset trading service providers, virtual asset safekeeping and administration service providers and virtual asset digital wallet service providers that are engaged in the purchase and sales, exchange and transfer, safekeeping and administration, intermediation and brokerage of virtual assets and virtual asset transactions” report their business to the Korea Financial Intelligence Unit (KoFIU). KoFIU is the FSC unit responsible for implementing anti-money laundering practices in Korea. To address concerns of significant illegal and money laundering activities using digital assets, VASPs in South Korea must now thoroughly identify their customers and report any suspicious transactions to KoFIU. The law provides a six-month period for existing VASPs to become compliant.
India’s New Crypto Reporting Regulations
On March 24, 2021 India’s Ministry of Corporate Affairs (MCA) passed amendments to the 2013 Companies Act that require companies operating in India to disclose their crypto holdings and report profits and losses from cryptocurrency transactions. Further, companies will have to share details of deposits or advances from any person for the purpose of trading or investing in cryptocurrency or virtual currency. These rules will go into effect on April 1, 2021. Earlier, in March 2020, the Supreme Court of India struck down the RBI’s ban on cryptocurrencies.
Bank of Jamaica Announces Central Bank Digital Currency Pilot Program
On March 23, 2021, the Bank of Jamaica announced that eCurrency Mint Incorporated (eCurrency) has been chosen to support the bank in testing a central bank digital currency (CBDC) solution in the bank’s Fintech Regulatory Sandbox pilot program from May to the end of December 2021. The bank also announced that “eCurrency Mint will also be the provider when the national CBDC roll-out begins in early 2022”. eCurrency has developed a “turnkey” solution to the implantation of CBDC and “has been working with central banks and international bodies to define CBDC, understand the implications and assess the design options to build the solution since 2011.” eCurrency website.