Blockchain Solutions Announced in Auto, Shipping, Medical and Aid Sectors
By: Jordan R. Silversmith
A prominent German automotive manufacturer announced this week that it has begun testing the use of blockchain technology for the company to monetize its supply-side data streams. The collaboration between the carmaker and a Singapore-based blockchain company will seek to promote decentralized sharing of internal sales and financial data between the manufacturer’s various production hubs and other partners in the supply chain.
A major Asian freight carrier also recently announced that it will take a trial run on Alibaba’s new Ant Blockchain technology. The Shanghai-based shipping company announced it would use Ant Blockchain, a product of Alibaba subsidiary Ant Financial, to cut costs and streamline operations.
At the end of June, the South Korean government announced a shift to blockchain to store clinical diabetes information. Blockchain startup Sendsquare was selected by government ministers to develop a proof-of-concept project to help the country, which has around 3.6 million people afflicted with diabetes, develop a blockchain registry to help analyze and store anonymized clinical data.
The European Union is also developing blockchain technologies to ameliorate societal problems: The European Innovation Council awarded over €5 million to six blockchain companies last week. The companies will work to develop various blockchain tools to address sustainability and industrial challenges, including using blockchain to promote trust and transparency on the Internet, strengthen intergovernmental sustainability goals and deliver cash aid to victims of natural catastrophes.
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Fund Issuing Digital Securities Obtains SEC Registration, Bitcoin ETP Lists on Xetra
By: Teresa Goody Guillén
This week, California investment firm Arca introduced its Arca U.S. Treasury Fund, which it says is the first U.S. Securities and Exchange Commission (SEC)-registered closed-end fund to offer digital securities. The fund is reportedly the first to be approved by the SEC under the Investment Company Act of 1940. Arca announced that the Arca U.S. Treasury Fund invests 80 percent of its portfolio assets in interest-bearing, short-duration U.S. Treasury securities and each ArCoin is a share in the Arca U.S. Treasury Fund. According to a press release, the securities will be digital only and thus can be transferred in peer-to-peer transactions using blockchain technology.
A Swiss-based product provider, 21Shares (formerly known as Amun), announced that its bitcoin exchange-traded product (ETP) was officially accepted to list on Xetra, Deutsche Boerse’s electronic trading venue. 21Shares reportedly launched its first bitcoin ETP at the end of 2018 on the SIX Swiss Exchange. The company is also reported to have launched products that track other cryptocurrencies, multiple digital assets and a “short bitcoin” ETP that inversely tracks bitcoin’s price.
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FATF Issues Crypto Reports, U.S. Court Addresses Bitcoin Transaction Privacy
By: Joanna F. Wasick
This week, two cryptocurrency-focused reports were issued by the Financial Action Task Force (FATF), an independent intergovernmental body that develops and sets policies to counteract money laundering, terrorist financing and similar crimes. One report was a 12-month review of the revised FATF standards on virtual assets and virtual asset service providers (VASPs), which laid out guidelines for regulation, supervision and monitoring. The review finds there is no current need to amend any of these standards. The other FATF report concerns stablecoins (digital assets backed by fiat currency) and finds they share many of the same potential financial crime risks as other virtual assets, due in part to their potential for anonymity and global reach. The report proposes a number of actions to decrease these risks, including implementing the same FATF standards on stablecoins as on virtual assets and VASPs.
The U.S. Court of Appeals for the Fifth Circuit recently issued a decision finding that an individual’s bitcoin transactions are not protected by the Fourth Amendment. The case, United States v. Gratkowski, involves a defendant who was the subject of a federal investigation regarding a child pornography website. The government had identified bitcoin addresses on the bitcoin blockchain linked to transactions with the illicit site. The government then subpoenaed a major U.S. cryptocurrency exchange for its records to identify the owners associated with those addresses, one of which was Gratkowski, who later argued that the government’s recovery of the bitcoin transaction information was unconstitutional because he had a reasonable expectation of privacy in those blockchain and cryptocurrency exchange records. The court disagreed and noted the inherent problem of making privacy arguments about a public blockchain, which openly reflects every bitcoin address and its respective transfers. The court also likened the exchange’s transaction records and related information to regular bank records, which the Supreme Court has already found to be outside the Fourth Amendment’s scope.
The District of Columbia Bar recently issued an ethics opinion that lawyers in Washington, D.C., can accept cryptocurrency as payment, provided that the fee agreement is fair and reasonable and the lawyer can safeguard the virtual assets. In recognition of cryptocurrency’s volatility, the opinion advises that the fairness of the fee arrangements should be assessed at the time they are made. The opinion also recognizes the IRS’s position that cryptocurrency be treated as property and notes that cryptocurrency fee payment is akin to payment in property, not in fiat currency. And earlier this week, new research was published finding that 89 percent of cryptocurrency holders worry about dying with their assets. Despite this worry, however, the same research finds that only 23 percent of holders have wills or other plans for their estates.
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Crypto Enforcement Actions Continue by SEC, CFTC, State and Foreign Agencies
By: Veronica Reynolds
Last month, the Securities and Exchange Commission (SEC) announced a court-approved settlement with Telegram Group Inc. and its wholly owned subsidiary, TON Issuer Inc., which requires the companies disgorge $1.2 billion to investors and pay an $18.5 million fine in connection with Telegram’s 2018 sale of digital currencies in an alleged violation of securities law. The settlement also requires Telegram to notify the SEC of any future digital offerings. Read more about the history of the Telegram case here. This week, another securities enforcement action emerged in Texas, with the state securities commissioner issuing an emergency order halting the proliferation of an allegedly fraudulent multilevel marketing scheme perpetuated by Mirror Trading International PTY LTD and four of its stateside multilevel marketing agents. The order alleges that the organization and its agents peddled fraudulent investment “opportunities” in a cryptocurrency trading pool.
Criminal enforcements proliferated in non-securities-related sectors as well in recent weeks. The United States Commodities Futures Trading Commission announced plans to file for default judgment against Benjamin Reynolds, the director of the now-defunct cryptocurrency scheme Control-Finance Limited, for failure to respond or otherwise defend allegations that he engaged in the execution of an elaborate $147 million Ponzi scheme. And stablecoin issuer the CENTRE Consortium blacklisted an Ethereum address subject to a law enforcement request. CENTRE did not confirm the reason for freezing the Ethereum address, but reports speculate that the address may be linked to criminal activity. In a related development, new research has found that Tether, the issuer of the USDT cryptocurrency, has reportedly blacklisted 24 Ethereum addresses this year that hold USDT, including an address that holds $4.56 million in cryptocurrencies.
Chinese authorities recently have cracked down on alleged money laundering schemes occurring through over-the-counter (OTC) platforms. In 2017, China banned cryptocurrency exchanges from facilitating trades between cryptocurrencies and the Chinese yuan. As a result, OTC platforms emerged as the primary destination for peer-to-peer cryptocurrency trading in the country. Anonymous reports claim that China is engaged in a “systematic effort” to curb money laundering purportedly facilitated by Chinese OTC platforms.
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