blockchain tipsheet

senate banking hearing

With 13 mentions of the word “crypto” in his opening statement, Senate Banking Chair Sherrod Brown (D, OH) made sure everyone knew where yesterday’s hearing on illicit finance was going.

Some Democratic senators took pains to paint crypto with a broad brush (smearing U.S. digital asset companies in the process) only to have witnesses largely push back on the suggested scope of the AML challenge with crypto. See the hearing page and video.

Brown said, “Too often, crypto platforms don’t use the same commonsense protections that help keep illicit money out of the traditional banking system—safeguards like knowing their customers, or suspicious transaction reporting. Some crypto services and tokens even help users keep their transactions anonymous.” Read his statement. But, if you’re a U.S.-based company, you already must comply with existing AML laws.

senate banking hearing – Q&A

Overall, the pro- (Republican) and anti-crypto (Dems) positions were along partisan lines.

Some senators did not bother with crypto in their Q&A – such as Sen. Katie Britt (R, AL) – who maintained focus on how on broader solutions for preventing the atrocities in Israel earlier in the month.

But, Senator Jack Reed (D, RI) promoted his CANSEE Act [S.2355] during the hearing and asked the star witness of the day – former Chair of Israel’s AML authority Dr. Shlomit Wagman – about decentralized finance (DeFi) and its role in terrorist financing. She steered the answer away from potential threats from DeFi saying that toolboxes existed for tracing and emphasized the transparency of the blockchain. She then re-shared a well-known anecdote about Hamas stopping the use of Bitcoin due to its traceability.

Senator Mark Warner (D, VA) shared during his Q&A allotment that what he’s learned in Intelligence briefings might help everyone understand the danger in crypto. He also issued a full-throated rejection of DeFi saying, “I do not accept the premise that there is no father or mother of a DeFi system. Someone is making money off of that.” Continue reading “Senators Pick Sides At Banking Hearing On Crypto And Terrorism Financing; JPM Coin Continues To Scale”

state of stablecoins

At yesterday’s State of Crypto event produced by CoinDesk in Washington, D.C., an appearance by Senators Cynthia Lummis (R, WY) and Kirsten Gillibrand (D, NY) provided optimism on digital assets legislation. Rather than identifying their own “Responsible Financial Innovation Act” [S.2281] as the low-hanging fruit, they said stablecoin law might be possible very soon. Sen. Gillibrand said, “I think there’s a huge potential for a bipartisan stablecoin bill in both the House and Senate. (…) This is a measurable, doable goal for both chambers to have.” Read more.

more tips:

Opinion: The U.S. Risks Its Position as a Stablecoin Leader – Jason Somensatto, Chainalysis, on CoinDesk

what you should know: Perhaps, a stablecoin bill gets added to a must-pass? This seems like the only hope with the expected stasis of 2024 legislative action caused by the 2024 general election.

Emmer

After the House Republican conference voted privately to nominate Majority Whip Tom Emmer (R, MN) to the Speaker role yesterday, crypto advocates rallied given Emmer’s strong support for digital assets and his desire to keep innovation, its companies and its jobs in the United States.

But a nomination is one thing. A successful election in a House with a slim and rancorous Republican majority is another as witnessed by the previous House Speaker, Rep. Kevin McCarthy (R, CA). Then, in yesterday afternoon, former Republican President Donald Trump’s comments added more controversy.

And just like that, Emmer was out as Speaker. So much for the pledge.

more tips:

Tom Emmer drops out of the Speaker’s race – The Hill

what you should know: For Republicans to sacrifice one of the party’s leaders, again, speaks to what appears to be the inevitable success Democrats will have in the 2024 general election. Blockchain industry execs will be praying Emmer doesn’t quit.

Continue reading “Comments Due Date For IRS Digital Assets Tax Rule Moved; Stablecoin Law Still Possible Say Senators”

NDAA and Senate Banking

The bipartisan National Defense Authorization Act (NDAA) amendment [S.712] brokered between Senators Kirsten Gillibrand (D, NY) and Cynthia Lummis and Senators Elizabeth Warren (D, MA) and Roger Marshall (R, KS) re-appeared yesterday in a press release from team Lummis-Gillibrand. The two “urge” for the inclusion of the Senate-passed amendment in the annual defense budget bill “following reports that Hamas has used unregulated crypto asset exchanges to fund their war in Israel and to pass comprehensive legislation to create a well-regulated and safe crypto asset market in the United States.”

Read the release.  The amendment was announced back in July.

Also yesterday, a spokesperson for Senator Lummis clarified about the process for the current amendment saying, “The Senate and House will have a conference committee where the Senate and House versions are considered for the final bill, so Sens. Lummis and Gillibrand are working to ensure this provision is included in the final version.”

what you should know: The announcement may be an attempt to try and head off the momentum that the drastically more restrictive “Digital Asset Money Laundering Act” [S.2669] introduced by Sens. Warren and Marshall has in light of recent news media reports linking crypto to terrorist funding.  We’ll likely hear more on both legislative efforts when Warren and Lummis have their 5-minutes to question witnesses at Senate Banking’s “Combating the Networks of Illicit Finance and Terrorism” hearing on Thursday. Continue reading “NDAA Amendment Picks Up AML Narrative Around Terrorism; Two HFS Hearings Postponed”

WSJ money laundering data

Blockchain industry participants are continuing their pushback on the data from Elliptic that was used two weeks ago in the original Wall Street Journal article and the follow-up on October 13 about terrorist financing and crypto. Some even want a retraction by the WSJ regarding its conclusions.

Yesterday, Coinbase Chief Legal Officer Paul Grewal said in response to discussion of the disputed data in a tweet on X, “Yes- wrong is wrong. This reported misinformation furthers agendas that demean real human tragedy and genuine and effective efforts to thwart those who are responsible.” And, crypto venture capitalist Nic Carter claimed on X yesterday that, “The [journalists] are aware of their abominable mistake and failed reporting and refused to retract. (Reached via email).”

At the center of the current “retraction” discussion seems to be blockchain analytics firm Chainalysis (the U.S. government is a large client) blog post last Wednesday which provided a deep dive on specific wallet addresses and suggested an incorrect reading of the data used by the WSJ such as: “Of the roughly $82 million in cryptocurrency received by this address, about $450,000 worth of funds were transferred from the known terror-affiliated wallet.” Read the whole thing.

Nevertheless, on Friday, the Wall Street Journal expanded and summarized its coverage of crypto and terrorist financing and, in the process, re-affirmed the use of Elliptic’s data in an article, “Why Hamas Uses Crypto to Raise Money.” Read it.

what you should know: There’s a lotta future business at stake for blockchain analytics firms – specifically, future business with the U.S. government. Among several narratives here is Chainalysis taking on Elliptic, which provided the original data to the WSJ.

WSJ opinion fight

Continue reading “Tillis And Hickenlooper Introduce Proof Of Reserves Bill; Crypto Wallet Data For Terrorist Financing Gets Pushback”

mixers and money laundering

U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) announced a new proposed rulemaking “that identifies international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern.” Citing terrorist organizations and illicit finance entities such as Hamas, Palestinian Islamic Jihad, and the Democratic People’s Republic of Korea (DPRK) as customers of mixing technology, Treasury said the new rules will promote transparency for mixing activities and therefore combat money laundering. Read the release.

Read the 80-page proposal from FinCEN here.  Comments are due 3 months from now pending publication of the proposal in the Federal Register.

FinCEN Director Andrea Gacki, who came aboard in July from the Office of Foreign Assets Control (OFAC), notes the use of the Patriot Act (Section 311) in the release, “This is FinCEN’s first ever use of the Section 311 authority to target a class of transactions of primary money laundering concern, and, just as with our efforts in the traditional financial system, Treasury will work to identify and root out the illicit use and abuse of the CVC ecosystem.”

Back in August of last year, Treasury made some of its first steps against mixers when it placed Tornado Cash and several dozen crypto wallet addresses on an OFAC’s SDN (Specially Designated Nationals) list. Unfortunately for some crypto owners a few days later, many wallets ran afoul of compliance when they were hit with a “dusting attack” – i.e. law-abiding crypto wallets were sent crypto from sanctioned wallet addresses using the mixing service. 

Coin Center responded forcefully to Treasury’s actions last year which included the observation: “The Tornado Cash Entity, which presumably deployed the Tornado Cash Application, has zero control over the Application today.” CoinCenter also said at the time, “By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority.” Read that one.

What you should know: There is no denying mixers are used for illicit purposes. On the other hand, it’s privacy-preserving processes can protect vulnerable populations needing to transfer funds.

more tips:

Crypto Mixers and AML Compliance – Chainalysis Continue reading “U.S. Treasury Proposes Rulemaking On Crypto Mixers; TradFi Firm DTCC Acquires Securrency”

letter from Sen. Warren

A new Congressional letter originating with Senator Elizabeth Warren (D, MA) and dated Tuesday (see it) makes requests of the White House and Treasury and expresses concerns about terrorist financing using crypto.

A footnote references last week’s Wall Street Journal article connecting the terrorist attacks in Israel to crypto donations received by the terrorist organization Hamas.

The letter and its questions align with the Senator’s [S.2669] Digital Asset Money Laundering Act” co-sponsored by Senator Roger Marshall (R, KS) and a bipartisan list of Senators. Though the questions may be rhetorical (“What steps is the Biden Administration taking to address the use of cryptocurrency by terrorist organizations, including but not limited to Hamas, PIJ, and Hezbollah?”) given Warren’s legislation, answers are requested by October 31.

letter from Sen. Warren – signers

For emphasis on urgency, Sen. Warren reached across Congress and collected a list of 105 signatures (29 Senators and 76 Members of the House) including her own for the letter. Only two were Republicans: Sen. Marshall and Senator John Kennedy (LA).

Notable signers among Democrats include Rep. Jim Himes (CT) and Rep. Josh Gottheimer. Both were “yes” votes on the digital asset market structure and stablecoin bills coming out of the House Financial Services Committee in July.

Notable non-signers among Democrats include House Financial Services (HFS) Ranking Member Maxine Waters (CA) and Senator Kirsten Gillibrand (NY).

Waters has publicly supported Democratic leadership’s efforts to stymie digital assets legislation in HFS in the 118th Congress.

Meanwhile, Senator Gillibrand along with Senator Cynthia Lummis (R, WY) have tried to build a bridge to Senator Warren and anti-crypto legislators with the NDAA amendment among other efforts. Gillibrand is also a co-sponsor of the Senate version of the Financial Technology Protection Act [S.1340] along with Senator Ted Budd (R, NC).  The bill was re-introduced in April in both Houses and seeks “to establish an Independent Financial Technology Working Group to Combat Terrorism and Illicit Financing.”

more tips:

Bipartisan group presses Biden for crypto crackdown after Hamas attacks – Punchbowl News Continue reading “100 Democrats Join Sen. Warren Letter On Terrorist Financing, Crypto; EU Central Bank On CBDC”