As we first reported in April, the New York Attorney General has been locked in a complicated dispute with a virtual currency exchange operator over the authority of the Attorney General to investigate its activities. In its defense in court proceedings, the crypto exchange asserted that the Attorney General lacked both personal jurisdiction and subject matter jurisdiction over it because of its efforts to avoid doing business in New York state. In a ruling ultimately siding with the Attorney General, a New York trial court on August 19 permitted the regulatory investigation to continue. The judge’s opinion underscores the difficulty faced by crypto entrepreneurs seeking to avoid contacts with U.S. customers in order to avoid the jurisdiction of U.S. courts and regulators.
The United Kingdom (UK) tax authority, Her Majesty’s Revenue & Customs (HMRC), has taken the first steps toward recovering tax that it believes may be outstanding from UK resident cryptocurrency investors: it has been reported that several crypto exchanges have received demands from HMRC relating to customer details and their transactional activity.
The Senate Committee on Banking, Housing, and Urban Affairs and the House of Representatives’ Financial Services Committee each held recent hearings to discuss cryptocurrency and, in particular, the proposed creation of a new digital currency by a prominent US technology company. Both hearings primarily focused on what economic and security concerns a new, privately issued digital currency may raise, how best to regulate the new currency and what role the US and Congress could play in advancing or hindering the growth of cryptocurrencies and blockchain technology more generally.
As reported in the July 26, 2019 Hunton Andrews Kurth LLP client alert, first France and now the United Kingdom have joined the growing number of European countries that have, in recent months, announced they are considering a new form of tax specifically directed at “digital” businesses. The new form of digital services tax is based on the premise that traditional methods of profit allocation between different countries are no longer fit for their purpose and that, in the context of “digital businesses”, a fresh approach needs to be adopted that takes into account the value added by the business’s user base.
Read the full alert here.
Continuing a cryptocurrency oversight program begun in 2018, on July 18, 2019, FINRA issued Regulatory Notice 19-24. Under Notice 19-24, FINRA has requested that broker-dealers notify their FINRA Regulatory Coordinator if the member firm, or its associated persons or affiliates, engages, or intends to engage, in activities related to digital assets, including digital assets that are not securities.
Amid a series of hearings on cryptocurrency scheduled this week in the House of Representatives and Senate, a discussion draft of a bill entitled the “Keep Big Tech Out of Finance Act” has begun to circulate online. The bill appears intended to prohibit several large, well-known technology firms from engaging in various cryptocurrency-related businesses in the United States.
On July 8, 2019, the SEC’s Division of Trading and Markets and FINRA’s Office of General Counsel (collectively, the Staffs) issued a Joint Statement on Broker-Dealer Custody of Digital Asset Securities. For purposes of the Joint Statement, “digital asset” refers to any asset that is issued and transferred using distributed ledger or blockchain technology, and a “digital asset security” is any digital asset that is also a security for purposes of the federal securities laws. The Joint Statement discusses several provisions of the federal securities laws applicable to registered broker-dealers that may be implicated when such entities custody digital asset securities.
On June 18, 2019, the Commodity Futures Trading Commission (CFTC) announced the commencement of a civil enforcement action (the Complaint) against two United Kingdom-based defendants, a purported Bitcoin trading company and its principal (collectively, the Defendants). The CFTC alleges that the Defendants perpetrated a wide-ranging fraud involving at least $147 million in Bitcoin from more than 1,000 customers.
Nevada is the latest state to adopt statutory amendments accommodating blockchain. In the first two weeks of June, Nevada enacted the following new laws:
- SB161 – The act creates a regulatory sandbox in the Department of Business and Industry for any use of a new or emerging technology, or any novel use of an existing technology, to address a problem, provide a benefit or otherwise offer or provide a financial product or service that is determined by the Director of the Department not to be widely available in Nevada. The act is effective June 13, 2019 for the purpose of adopting any regulations and performing any other preparatory administrative tasks necessary to carry out the provisions of the act, and on January 1, 2020, for all other purposes.
As reported in the Hunton Andrews Kurth LLP Privacy & Information Security Law Blog posted on June 6, 2019, Hunton’s Centre for Information Policy Leadership (“CIPL”) on May 31 issued a white paper on GDPR One Year In: Practitioners Take Stock of the Benefits and Challenges (the “White Paper”). In addition, CIPL submitted the White Paper along with a separate response to the European Commission’s questionnaire to prepare for the June 2019 stocktaking exercise on the application of the EU General Data Protection Regulation (“GDPR”).