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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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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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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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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On September 13, 2019, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions targeting three North Korean state-sponsored malicious cyber groups responsible for North Korea’s malicious cyber activity on critical infrastructure. As part of the sanctions, OFAC alleges that the entities conducted successful operations targeting more than 16 organizations across 11 countries, including the SWIFT messaging system, financial institutions and cryptocurrency exchanges.
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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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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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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.
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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.
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