Blockchain and Crypto Initiatives Launch in Foreign Markets, Guidance Issued on Ransomware and Crypto Derivatives, DOJ Indictment Alleges Crypto Tax Evasion | JD Supra

Crypto Initiatives Launched by Foreign Banks, Exchanges, Apps, Gaming Firms

By: Robert A. Musiala Jr.

According to a press release this week, the “Bank of Thailand (BOT) … has successfully launched the world’s first blockchain-based platform for government savings bonds issuing a total of $1.6B USD within two weeks.” According to the press release, the blockchain platform reduced the “operational complexity” and cost of issuing the bonds and reduced “a process that previously took 15 days to two days.”

According to another recent press release, a group of 14 banks has launched an initiative to create a “digital trade finance registry” to “improve transparency in commodity trade” and “serve as a secure central database for the banking industry to access records of trade transactions financed across banks in Singapore.” The press release notes that the project will be developed “on a blockchain network supported by technology provider dltledgers.”

In Japan, an affiliate business of LINE, the popular Japanese messaging app, announced plans to launch a service that will allow LINE users to lend their cryptocurrencies to BITMAX, a licensed Japanese cryptocurrency exchange that is also affiliated with LINE. Users of the service will reportedly receive a “rental fee” that is similar to interest on a traditional loan.

Late last week, the foreign affiliate of a major U.S. cryptocurrency exchange announced that it has received “a full Class F Digital Assets Business Act license to operate its acclaimed cryptocurrency exchange under the supervision of the Bermuda Monetary Authority (BMA).” Also late last week, a major video game publisher based in France announced the forthcoming public sale of its blockchain-based token, ATRI, which is scheduled to take place on Nov. 20 in partnership with a major cryptocurrency exchange.

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New Guidance on Ransomware, Crypto Derivatives; Crypto Tax Report Published

By: Teresa Goody Guillén

On Oct. 1, the U.S. Department of the Treasury issued two advisories intended to assist U.S. individuals and businesses in combating ransomware. The Office of Foreign Assets Control (OFAC) issued an advisory to highlight the sanctions risks associated with ransomware payments—a large portion of which are paid in bitcoin. The OFAC advisory reinforces that the U.S. government disfavors payments of ransom, but there is no general ban; payments to sanctioned individuals and/or entities can result in significant penalties; applications for licenses to make payments to sanctioned individuals and/or entities are considered with a presumption of denial; and cooperating with law enforcement is essential. The Financial Crimes Enforcement Network (FinCEN) issued the other advisory, which is intended to alert financial institutions to predominant trends, typologies, and potential “red flag” indicators of ransomware and associated money laundering activities.

In the UK, this week the Financial Conduct Authority (FCA) published final rules banning the sale, marketing and distribution to all retail consumers of any derivatives (i.e., contracts for difference, options and futures) and exchange traded notes that reference unregulated transferable cryptoassets by firms acting in, or from, the UK. According to the press release, “unregulated transferable cryptoassets are tokens that are not ‘specified investments’ or e-money, and can be traded, which includes well-known tokens such as Bitcoin, Ether, and Ripple.” The FCA cited several risk factors of these products, including the lack of a reliable basis for valuation; the prevalence of market abuse and crime; extreme volatility; and a lack of understanding and legitimate investment need on the part of retail consumers.

A Big Four accounting and consulting firm has released its Annual Global Crypto Tax Report 2020, which aims to evaluate and review the existing digital assets tax guidance globally and identify gaps or where guidance may need to be refined or supplemented. The report notes that the guidance issued thus far largely focuses on how to apply existing tax laws or policies to transactions, situations and structures that are unique to digital assets, instead of passing new legislation. The report includes an appendix that contains the latest global crypto tax developments, along with crypto tax information for 29 jurisdictions.

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DOJ Charges Allege Crypto Tax Evasion, Interpol Cites Crypto Privacy Threats

By: Jordan R. Silversmith

John McAfee, an English American computer programmer and businessman, was arrested this week on charges of tax evasion and failure to file tax returns. According to a press release, McAfee “evaded his tax liability by directing his income to be paid into bank accounts and cryptocurrency exchange accounts in the names of nominees.” The Department of Justice unsealed its indictment following McAfee’s arrest in Spain, where he faces extradition. This comes on the same day that the Securities and Exchange Commission (SEC) announced charges against McAfee for allegedly promoting several initial coin offerings (ICOs) without disclosing that ICO issuers were paying him to do so, in violation of federal securities laws. McAfee faces a maximum sentence of five years in prison on each count of tax evasion and a maximum sentence of one year in prison on each count of willful failure to file a tax return. He also faces a period of supervised release, restitution and fines.

A report released by Interpol this week named privacy wallets, privacy coins and other cryptocurrency items as “top threats” in its Internet Organized Crime Threat Assessment. According to the report, “privacy-enhanced wallet services using coinjoin concepts (for example, Wasabi and Samurai [sic] wallets) have emerged as a top threat in addition to well established centralized mixers.”

This week the Travel Rule Protocol (TRP), a 25-member working group favored by banks and traditional financial institutions, released the first version of its application programming interface (API). The group aims for the product to offer a clear and straightforward way for organizations to trade identification data about cryptocurrency transaction originators and beneficiaries, as required by recent guidance from the Financial Action Task Force.

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