In the wake of the recent controversy surrounding the proposed Libra cryptocurrency, two members of Congress have begun circulating draft bills that would tighten federal regulation of certain stablecoins.
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Fed Governor Discusses Digital Currencies
A recent speech by Fed Governor Lael Brainard entitled “Digital Currencies, Stablecoins, and the Evolving Payments Landscape” discusses a number of topics of interest to the crypto community, including the development of stablecoins and their potential impact on the global payments system. In particular, Governor Brainard opined that the widespread adoption of stablecoins could have implications for the role of central banks and monetary policy.
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Liechtenstein Parliament Approves Comprehensive Token Act
On October 3, 3019, the Liechtenstein Parliament unanimously approved the Token and TT Service Provider Act (the Act). The Act, sometimes referred to as “TVTG” based on its German acronym, provides a comprehensive framework regulating the issuance, storage and conveyance of blockchain tokens in Liechtenstein. According to Liechtenstein’s embassy in Washington, Parliament’s approval began a 30-day public comment period that runs through November 8, 2019. If there is no adverse public comment by the citizens of Liechtenstein, the embassy anticipates that the Act will take effect soon thereafter.
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CFTC, FinCEN and SEC Issue Joint Statement on Activities Involving Digital Assets
Today the CFTC, SEC and FinCEN issued a joint statement on digital assets. In particular, the joint statement reminds persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).
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IRS Updates Guidance on Cryptocurrency
On October 9, 2019, the Internal Revenue Service (Service) released Revenue Ruling 2019-24. The revenue ruling considers whether taxpayers should realize gross income under two common scenarios involving cryptocurrency and includes a number of illustrative examples. The Service concluded that a so-called “hard fork” on a cryptocurrency blockchain does not create taxable income if a taxpayer does not subsequently receive new units of cryptocurrency, but taxable ordinary income is generated by “airdrops” following a hard fork that delivers new units of cryptocurrency to a taxpayer.
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House of Representatives Approves Bipartisan Blockchain Bill
On September 19, 2019, the House of Representatives by voice vote approved H.R. 2613, a bipartisan bill entitled the “Advancing Innovation to Assist Law Enforcement Act.” The bill instructs the director of FinCEN to study and prepare a report to Congress on emerging technologies, including blockchain, in an effort to combat money laundering and other forms of illicit finance. Though somewhat modest in scope, the bill is among the first to be approved by one of the chambers of Congress on the topic of blockchain.
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SEC Commissioners Testify About Digital Assets
On September 24, 2019, the House Financial Services Committee held an oversight hearing entitled “Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat” in which each of the five SEC commissioners were called as witnesses. While the hearing covered a wide range of issues related to securities regulation and enforcement, it also touched on a number of topics of particular interest to crypto and blockchain businesses, including the application of the securities laws to digital assets.
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Texas Passes Legislation Providing for Use of Blockchain in Entity Recordkeeping and Communications
Effective September 1, 2019, lawmakers in Texas passed legislation clarifying the ability of businesses organized under Texas law to incorporate blockchain technology into their entity recordkeeping and communications. In doing so, Texas joins the ranks of several other states that have similarly amended their corporate formation statutes.
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FTC Permanently Bans Operators of Cryptocurrency MLM
The Federal Trade Commission reached a settlement with the promoters of chain-based cryptocurrency schemes—Thomas Dluca, Louis Gatto, Eric Pinkston and Scott Chandler—in which the defendants promised recruits big rewards in exchange for a small payment of bitcoin or Litecoin. In reality, the defendants’ schemes, promoted through YouTube videos, social media and in conference calls, depended on continual recruitment of new participants to generate revenue. Under the FTC settlement, each defendant is permanently banned from operating, participating in or assisting others in promoting or operating any multi-level marketing program, pyramid, Ponzi or chain referral scheme, and three also were required to make payments in redress.
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New York Attorney General Prevails in Investigative Dispute with Crypto Exchange
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.
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