Category: News

financing terrorism

Yesterday, The Wall Street Journal revisited terrorism-financing-via-crypto themes echoed in previous pieces (1, 2) as well as last week’s Bloomberg article showing Russian cryptocurrency exchange Garantex continues to thrive in spite of sanctions.

Payments using the stablecoin Tether are at the root of both stories as Brian Nelson, U.S. Treasury’s undersecretary for terrorism and financial intelligence, tells the Wall Street Journal in a statement, “Russia is increasingly turning to alternative payment mechanisms to circumvent U.S. sanctions and continue to fund its war against Ukraine.” Read the WSJ article.

what you should know: There appear to be two key areas of concern for the crossroads of digital assets and money laundering: Russia and Hamas.

At a House Financial Services (HFS) hearing about FinCEN (Financial Crimes Enforcement Network) in mid-February, Nelson appeared as a witness where House Majority Whip Tom Emmer (R, MN) reminded Nelson of a November letter he and a bipartisan group of members had sent to the White House and U.S. Treasury regarding getting data on digital assets involvement in Hamas and terrorist financing. 

The Majority Whip said to Nelson at the hearing: “Treasury has the data to paint the correct narrative” on digital assets and Emmer openly wondered why Treasury didn’t offer a more informed opinion.  Nelson seemed to claim they did offer an informed opinion. More highlights from the hearing are here.  

financing terrorism – Tether 

Tether, the company, didn’t respond to the reporters for the WSJ article yesterday, but did synchronize its release of Tether’s “Completion of System Organization Control (SOC) 2 Type 1 Audit.” The company made a case for cleaning up its anti-money laundering act by explaining in a blog post about the new audit: “The SOC 2 Type 1 audit examination is a gold standard in security compliance developed by the American Institute of Certified Public Accountants (AICPA), and underscores Tether’s position as an industry leader committed to delivering a secure experience.” See the blog post. Continue reading “Terrorism, Crypto And Russian Sanctions in WSJ; Rep. Nickel Growing Dem Support”

stablecoin and money laundering

Last week, anonymous sources tell Bloomberg that U.S./U.K. authorities are investigating $20 billion in crypto transfers of the Tether stablecoin through Russian crypto exchange Garantex. Bloomberg says, “The transfers have taken place since Garantex was sanctioned by the US and UK on suspicion of enabling financial crimes and illicit transactions in Russia.” Read more.

Last October, the Wall Street Journal reported that Garantex – in spite of sanctions issued in 2022 – had a booming business which included potential involvement in the funding of terrorism and, in particular, Hamas. Read that one from October 13.

more tips:

• • Treasury Sanctions Russia-Based Hydra, World’s Largest Darknet Market, and Ransomware-Enabling Virtual Currency Exchange Garantex (April 2022) – U.S. Treasury

what you should know: Is this latest news more fuel to the fire of anti-money laundering bills such as Senator Elizabeth Warren’s (D, MA) Digital Asset Anti-Money Laundering (DAAMLA) bill or Senator Jack Reed’s (D, RI) CANSEE Act? Or maybe Rep. Sean Casten (D, IL) will finally be able to find a Republican partner for the House version of DAAMLA? Continue reading “Stablecoin Runs Afoul Of Sanctions; Anti-CBDC Bill Could Ride Along Any Digital Asset Bills”

Coinbase MTD – decision

Yesterday, District Judge Katherine Failla rendered her decision on Coinbase’s motion-to-dismiss (MTD), which was filed last August, in the enforcement action the Securities and Exchange Commission (SEC) brought against the company last June.

See Judge Failla’s filing (PDF).

You may recall that Judge Failla dismissed the Uniswap case last fall – a fraud class-action lawsuit brought by 6 individual investors against the Uniswap protocol. Her decision at the time showed an embrace of principles of decentralization.

And even though the tone of January’s MTD hearing seemed to bode well for Coinbase and its MTD, the case was allowed to proceed except for one part where Judge Failla said, “…the Court agrees with Defendants that they are entitled to dismissal of the claim that Coinbase acts as an unregistered broker by making its Wallet application available to customers.”

Coinbase MTD – Coinbase reaction

Coinbase chief legal officer Paul Grewal said about the decision, “Today, the Court decided that our SEC case will move forward on most of the claims, but dismissed the claims against Coinbase Wallet. We were prepared for this, and we look forward to uncovering more about the SEC’s internal views and discussions on crypto regulation…” Read his thread on X.

Grewal concluded on X: “Looking ahead, we remain confident in our legal arguments, we look forward to proving we’re right, we are eager for the opportunity to take discovery from the SEC for the first time, and we appreciate the Court’s continued consideration of our case…” Continue reading “Coinbase Case Continues Says Judge Failla But DeFi Gets New Momentum”

Prometheum week

As we first discussed on Monday, it’s “Prometheum Week” on Capitol Hill even if many Members may be working from home.

Yesterday, Republican leaders on the House Agriculture and House Financial Services (HFS) Committees came out swinging in anticipation of a potential blow-up – ignited by digital asset securities platform Prometheum – between the SEC and the CFTC over the classification of the Ethereum token (ETH) as a security versus a commodity.

In a letter sent to the SEC Chair Gary Gensler, House Ag Chair Glenn “GT” Thompson (R, PA) and HFS Chair Patrick McHenry (R, NC), Reps. French Hill (R, AR), Dusty Johnson (R, SD), House Majority Whip Tom Emmer (R, MN), and Rep. Warren Davidson (R, OH) headlined a list of 48 House Republicans wanting an explanation:

“Despite your insistence that most digital assets are ‘digital asset securities,’ that term continues to be undefined. Other regulators, intermediaries, and market participants disagree with your assertions, and have struggled to identify which digital assets are digital asset securities.”

The Members ask a series of questions trying to get to the bottom of the SEC’s and its Chair’s thinking on digital assets such as: “Is ETH a digital asset security? (…) If ETH is a digital asset security, please answer the following additional questions…”

Read the letter. Answers are due by April 9.

Democrats are nowhere to be found in the press release or the letter.  Prometheum is a threat to the House Republicans digital assets agenda, which Democratic leadership – from the White House to HFS Ranking Member Maxine Waters (D, CA) – likely knows. Read the press release.

what you should know: The April 9 deadline likely lands just in front of the rumored HFS SEC Oversight hearing next month (Politico). If the SEC Chair doesn’t supply adequate responses, will this be the moment for HFS Chair McHenry to use the subpoena card on Gensler that he threatened last October? Continue reading “House Republicans Try To Pre-empt Ether Securities Designation By SEC; Sanctions, Enforcement Highlights”

lawsuit pre-empts SEC

Here’s a novel, industry approach to the Securities and Exchange Commission’s  (SEC) “regulation by enforcement” approach to digital assets: sue the SEC before they sue you.

Amanda Tuminelli, Chief Legal Officer of DeFi Education Fund, announced yesterday that her organization along with a digital assets and apparel startup Beba had formally sued the Securities and Exchange Commission.

Tuminelli said on X, “Today, DeFi Education Fund and Beba Collection
sued the SEC. It has everything to do with airdrops + stopping the SEC’s regulation by enforcement crusade against our industry.” See the complaint.

The complaint notes the startup’s beginnings and the two brothers, originally from East Africa, who had started a business in Waco, Texas, which featured local artisans and incorporated the use of digital asset tokens.

Axios covers the news and explains, “The [lawsuit] is part of an evolving legal strategy for the crypto industry that strikes back at what it believes is an unlawful pattern of enforcement actions, and seeks to compel the regulator to create a clear set of rules.” Read more.

what you should know: It’s a long road to hoe but this is another element of industry strategy in the United States: hammer out a regulatory framework through the courts if Congress and regulators aren’t cooperating. Continue reading “DeFi Education Fund Tries Pre-Empting The SEC; Unlocking Democratic Congress For Crypto”

Prometheum week

Prometheum co-CEO Aaron Kaplan let the world know in early February that his SEC-approved (with a “special purpose broker-dealer license) digital assets trading platform would likely roll out custody for Ether “security” tokens at the end of March. Well, here we are. And, Congress has left town. What a convenient moment for the SEC and its Chair Gary Gensler to nudge the little-known platform forward with its ETH “security” designation which would directly contradict the ETH “commodity” token overseen by the Commodity Futures Trading Commission (CFTC) and its Chair Rostin Behnam.

Both Behnam and Gensler are Democrats, but are representative of their caucus split when it comes to digital assets.

Generally speaking, Gensler is anti-crypto and seeks a strict securities agenda for digital assets whereas Behnam is pro-crypto and sees more nuance with digital assets beginning with unequivocal support for Bitcoin AND Ether as commodity tokens.

An early March House Agriculture Committee CFTC Oversight hearing led to a choreographed exchange between House Ag Chair Glenn “GT” Thompson (R, PA) and Chair Behnam which sounded the alarm that a Prometheum securities designation for Ether would bollocks up the works of the CFTC where it treats the token as a commodity.

So the question this week – the last week of March – is.. will Prometheum roll out its ETH security token custody? And also.. who will be the first client? Continue reading “Ether The Security May Debut This Week; House Republican Margin Complicates Crypto Bills”

Redcoats are coming

At Blockworks’ Digital Assets Summit in London this week, Lord Chris Holmes, member of the UK House of Lords, was quoted as saying, “We have such an opportunity in the UK because we’ve seen what’s happening in the [European Union]…and indeed to a large extent what isn’t happening in the United States.” Cheeky! Blockworks’ Casey Wagner reports that British pols were clearly feeling the moment. Even the conference itself, originally scheduled for Washington D.C., was taking place in the UK. Read more.

what you should know: The British didn’t do well the last time they challenged us. But, we didn’t sit on our hands either.

divided government, agencies

In Tony Edward’s Thinking Crypto podcast, former Commodity Futures Trading Commission (CFTC) Chair Chris Giancarlo (R) responds to talk that the Securities and Exchange Commission (SEC) and CFTC are disagreeing about whether Ether is a security and commodity. Giancarlo says: “Let me say this… Thank goodness for the CFTC for the past 5 or 6 years because if the CFTC were not there holding the flame for innovation, we would only have the SEC and its relative indifference/antipathy/hostility to digital asset innovation.”

He continues: “Our founders of the United States – right or wrong – they very much believed in divided government. They felt that if government were arguing with itself, then our liberties would be safe. In a similar kind of way, that’s played out between the SEC and the CFTC. (…) But for it, we might have had a majority view coming out of the SEC dominating their approach to this…” Listen here. Continue reading “UK Lawmaker Gloats As US Awaits Digital Assets Framework; Divided Government, Agencies”

Coinbase event – Chair McHenry

In Washington D.C. yesterday, Coinbase convened “Update The System” policy summit with the promise of showing policymakers use cases for crypto -or “onchain” as the company is promoting.

Republican House Financial Service Chair Patrick McHenry (R, NC) offered his input again on whether or not digital assets legislations could see the light of day in the remaining months of the 118th Congress. As he was at Tuesday’s Punchbowl News event, McHenry was guardedly optimistic on stablecoin legislation with the current plan including riding along “must-pass” legislation before the end of the year (presumably before the August recess).

McHenry told Coinbase’s policy chief Kara Calvert about the stablecoin possibilities (lightly edited for clarity):

“We need a legislative vehicle, we need a deadline. We can drive the stickier issues if we have a deadline. And so… ‘are we going to have legislative vehicles to get signed into law?’ I think that those chances have increased once we fund the government, which gives us the opportunity to land a product like a stablecoin bill. If we’re given that deadline. I do think there’s goodwill enough to to answer the President’s Executive Order on a need for a federal stablecoin legislation and further the work that Ranking Member [Maxine] Waters (D, CA) and I have been have been about for the last 20 months – we and our teams.”

McHenry explained his public view on why its taken so long to get a House floor vote on digital assets legislation:

“When I designed this plan, I didn’t anticipate that we were going to have the motion to vacate the Speaker in the fall…. that I would end up in the Speaker’s chair for three weeks…. all these various things that blew up the end of the year where I thought we’re gonna move our products. I didn’t anticipate the final four months of the year getting so jacked up – which they got very jacked up. And then it’s taken us three months to get our footing back. In those seven months, that’s when I wanted to have all of our actions taken care of.”

more tips:

• • Key U.S. Lawmaker McHenry Says House Has ‘Workable’ Stablecoin Bill – CoinDesk

what you should know: Given the House Floor vote plan, will a House Floor vote only take place for the must-pass on which the stablecoin bill will ride and/or will there be a separate vote on the stablecoin bill and digital asset market structure bills, for example? The value of a House Floor vote on the specific legislation such as stablecoins will be to reveal individual member support -or not. And, lurking in the reeds will be vigilant crypto Super PAC funds for Member’s November campaigns -or their opponents. Continue reading “HFS Chair McHenry Warns SEC Chair Gensler; Ether Getting Closer Look By The SEC”