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European Parliament Sees Crypto Tax Evasion And Blockchain For Solution

European Parliament

Last week’s European Parliament debate on a tax reporting resolution (PDF) brought into focus the depths of concern regarding tax evasion by cryptocurrency holders in the European Union.  Even though there was hopeful discussion that blockchain technology could be a potential solution for standardized tax reporting on digital assets across the continent, the consensus view appeared to hold that crypto holders aren’t paying their fair share.

A press release (read it) offered this sub-headline, “Members of the European Parliament adopted a resolution on October 4 calling for a better use of blockchain to fight tax evasion and for member states to coordinate more on the taxing of crypto assets.”

In spite of a vote that included 566 votes “for,” 7 “against” and 47 abstentions, the resolution’s debate during a plenary session of Parliament included a number of Members who voiced starkly different points-of-view in spite of their support.

Glass half-empty

It certainly sounds great: a European tax system on the blockchain. But who/what exactly is going to implement this? It is not clear from the resolution.

What is clear is that Europe believes tax evasion is happening and the rule of law needs to get ahead of it.

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6 Takeaways from Circle’s Converge22

Converge22

With an estimable blizzard of content in the rear view mirror, here’s a selection of key takeaways from Circle’s Converge22 conference in San Francisco.

Circle is the maker of USDC, among the most widely used stablecoins today, which is nearing a market capitalization of $50 billion according to Coinmarketcap.

Takeaways include:

#1 – dreamforce for crypto

#2 – stablecoin legislation

#3 – the “p” word

#4 – learn by doing

#5 – regulatory advocacy

#6 – expression of the dollar

Read them all…

Takeaway #1 – dreamforce for crypto

The positioning for the conference as stated by Circle executives was “Dreamforce for internet finance” not “Dreamforce for crypto.” But, last week in San Francisco felt like a conference with a largely crypto audience. Still, this comparison – crypto vs internet finance – reveals the core of Circle’s ambition and the potential it sees with crypto innovation.

For their first-ever “ecosystem conference,” Circle programmed a three-day multi-track agenda featuring topics related to key strategic areas  for the company such as stablecoin uses, regulation, privacy/identity, compliance, lending, financial inclusion and more.

Circle CEO Jeremy Allaire stated that over 2,600 attendees made the trip to San Francisco and added, “We always thought of USDC as a protocol that people can build on.” And now the event will exhibit the different dimensions of what people and companies are doing with that protocol, he said.

Takeaway #2 – stablecoin legislation

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The Crypto Regulation Winner? EU Holistic Framework vs. US Activity-Based Approach

Hansen and Cameron

At last week’s Converge22 conference in San Francisco, crypto regulation was top of mind for attendees and there was no shortage of relevant content across three days of programming produced by Circle, keepers of the USDC stablecoin.

In a panel titled “View from Across the Pond: Regulatory Change in the EU and UK,” participants reviewed where things stood in relation to the United States.

The panel’s premise was also a helpful reminder of how Facebook’s Libra/Diem project in 2019 inspired fearful regulators across the globe to urgently consider guardrails for the digital asset ecosystem.

As of June 2022 in the European Union, the passage of Markets in Crypto-Assets or MiCA regulation as well as the Transfer of Funds Regulation (TFR) delivered the first holistic regulatory framework for crypto for a large swath of the global population. (For a U.S. corollary, one might point to the proposed Lummis/Gillibrand “Responsible Financial Innovation Act” – a broad framework. Of course, it’s far from being signed into law.)

Patrick Hansen, who is arguably the top source of European Union regulation trends on crypto Twitter as well as an advisor to Presight Capital, joined the panel discussion along with Dr. Lisa Cameron, UK MP and Chair of the Crypto and Digital Assets.

Circle’s VP of Policy and Regulatory Strategy, UK/EU, Teana Baker-Taylor, steered the conversation.

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CFTC Action Brings DAOs Into The Enforcement Crosshairs

Up until last week, few had ever heard of bZeroX, let alone Ooki DAO.

But what a difference an enforcement action makes as the Commodity Futures Trading Commission (CFTC) announced on Thursday a $250,000 penalty against bZeroX and its founders, Tom Bean and Kyle Kistner, as well as charges for members of the decentralized autonomous organization (DAO), Ooki DAO, for offering “illegal, off-Exchange digital-asset trading, registration violations, and failing to comply with Bank Secrecy Act.”

Wait… a DAO? Oh yes. Time will tell if the action creates a chilling effect for Americans participating or having an interest in DAOs. Many think that if they join a particular DAO’s Discord channel, they are now a part of a DAO.

But, the CFTC took it a step further saying Ooki DAO members were defined “as those holders of Ooki tokens that have voted on governance proposals with respect to running the business.”

The basis of the CFTC charges for the DAO suggest that the alleged offending assets of bZx Protocol may have been transferred to what was pitched to DAO members as a decentralized structure that could overcome today’s regulatory requirements:

“…On approximately August 23, 2021, bZeroX transferred control of the bZx Protocol to the bZx DAO, which subsequently renamed itself and is currently doing business as the Ooki DAO. The Ooki DAO operates the Ooki Protocol (formerly the bZx Protocol) in the exact same manner as bZeroX and thus is continuing to violate the law in the same manner as bZeroX. By transferring control to a DAO, bZeroX’s founders touted to bZeroX community members the operations would be enforcement-proof—allowing the Ooki DAO to violate the CEA and CFTC regulations with impunity, as alleged in the federal court action. The order finds the DAO was an unincorporated association of which Bean and Kistner were actively participating members and liable for the Ooki DAO’s violations of the CEA and CFTC regulations.”

One of the Commission’s five members, Summer Mersinger, dissented (see the detailed release) on the part of the order related to token holders in the DAO but agreed on the punishment for bZeroX and its founders.

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Rep. McHenry Tempers Expectations On Imminent Stablecoin Legislation

Rep. Patrick McHenry

Rep. Patrick McHenry (R, NC) was the focal point of Politico’s “Writing the Rules of Crypto” event today at Washington, D.C.’s Hotel Washington.

The congressman clearly wanted to temper expectations on whether a bill on stablecoins could be forthcoming from the House Financial Services committee where he serves as Ranking Member along with Chairwoman Rep. Maxine Waters (D, CA).

Politico reporter Sam Sutton guided the panel discussion and cut right to the chase with McHenry asking him, “What’s the hold-up with stablecoin legislation?”

McHenry launched in eagerly saying, “A lot.  First, it’s an election year – big policymaking in an election year is hard.” Then, he provided a brief history on why regulatory guardrails were needed as well as revealing the influence of state stablecoin legislation – in particular, New York’s – which has helped inform the work undertaken thus far by the Financial Services committee in coordination with the Fed and Treasury.

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Senator Thune Talks Controls on SEC Purse and Personnel

Senator John Thune

This morning in Washington, D.C., Senator John Thune (R, SD), the Senate Minority Whip, spoke on a variety of investment topics circulating through Capitol Hill at a Punchbowl News event sponsored by American Investment Council.

With mid-term elections less that two months away Thune remained sanguine about Republican prospects to overtake the majority in the Senate.

Nothing was mentioned about his recent co-sponsorship of the bipartisan Digital Commodities Consumer Protection Act, which gives regulatory authority over bitcoin and ether to the Commodity Futures Trading Commission (CFTC).

But, he did speak about general dissatisfaction with recent practices of securities regulators – namely the Securities and Exchange Commission led by Biden Administration appointee Gary Gensler, its Chair.

Overall, the SEC’s commission tilts Democratic with a 3-2 edge.

Thune was interviewed by Punchbowl News Founder, Anna Palmer and elaborated on the dynamics between the SEC and Republicans today.

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Senator Lummis Asks For Disclosure Requirements From SEC’s Gensler Before Next Congress

Senator Lummis

It was a relatively brief interaction, but in engaging with SEC Chair Gary Gensler at his Senate Banking Committee hearing last week, Sen. Cynthia Lummis (R, WY) provided an update on her bipartisan Responsible Financial Innovation Act (RFIA) co-sponsored with Sen. Kirsten Gillibrand (D, NY).

Senator Lummis also generated news about the SEC’s crypto disclosure requirements.

View at 1 hour 36 minutes of the video for Thursday’s hearing on oversight of the SEC.

Lummis told SEC Chair Gensler that she and Sen. Gillibrand expect to re-introduce the bill early in the new Congress next year.

In order to meet that deadline, she asked that Chair Gensler and SEC staff work with her and Gillibrand on Section 301 of the bill to understand the necessary disclosures required by digital asset companies.

Throughout the brief interaction, Sen. Lummis made multiple mentions of her Democratic colleague’s involvement appearing to signal to the Democrat Gensler, who was appointed by a Democratic administration, that this isn’t just a Republican initiative.

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Executive Order Responses on Digital Assets Signal Interest, Caution Across Government

EO reports

Deadlines were met last Friday as several departments of the U.S. government delivered their reports on digital assets as required by President Joseph Biden’s Executive Order 14067 (EO) in March.

The goal of the EO is to ensure that the United States stays in front of innovation especially as it relates to the U.S. financial system. And, perhaps more importantly, the goal appears to be understanding a framework necessary for risks inherent in crypto markets and ensuring the ongoing global supremacy of the U.S. dollar and protection of the financial system.

The White House kicked things off with a “Fact Sheet” titled “White House Releases First-Ever Comprehensive Framework for Responsible Development of Digital Assets” (read it) in which it says nine reports have been “submitted” to-date – below are five that were released publicly on Friday.

U.S. Treasury Department (3 reports)

Treasury Secretary Janet Yellen trumpeted the release of three reports from her department adding in a press release that if risks are mitigated, “digital assets and other emerging technologies could offer significant opportunities.”

The “Crypto-Assets: Implications for Consumers, Investors, and Businesses” (get the PDF) report from Treasury looks at “developments and adoption of digital assets and changes in financial market and payment system infrastructures for U.S. consumers, investors, businesses, and for equitable economic growth.”

As part of its recommendations, Treasury sees a need to “Provide Guidance through Individual Actions” and elaborates that the OCC, FDIC and SEC have all taken such actions recently including “the SEC’s special purpose broker-dealer statement on digital asset custody that identifies the circumstances in which the SEC will not take certain enforcement action against broker-dealers with respect to digital asset securities.”

Of all the reports released, “The Future of Money and Payments,” provides the broadest and most hopeful overview and loops in the CBDC debate from a U.S. Treasury perspective. (get the PDF).

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