Tag: blockchain

Treasury threatens crypto

Last Friday, a speech to be delivered by U.S. Deputy Treasury Secretary Wally Adeyemo at foreign-policy think tank Royal United Services Institute in London warned “cryptocurrency firms against allowing their platforms to be used to finance terrorist organizations, as scrutiny mounts of how Hamas may have used digital currency to fund its attack on Israel,” reported The Washington Post.

The Post published an excerpt from Adeyemo’s Friday speech the day before: “There are those in the digital asset space who wish to innovate without regard to consequences instead of doing so responsibly, including protecting against illicit financing. (…) Let me be clear: We will use every tool available to go after any person or platform that is facilitating the movement of resources for terrorists.” The theme speaks to an October 19 rulemaking proposal by Treasury’s FinCEN around mixers which has implications for decentralized finance (DeFi).  Read more.

what you should know: The fact the speech was shared by the Administration ahead of time with WaPo is telling. The speech feels like a new level as the speech increases the pressure on the digital assets industry while also showing clear support for legislative efforts in Congress which seek tough or draconian efforts to shut down cryptocurrency, in particular, in the United States. Adeyemo also spoke to CNN on the same day as the speech with a similar tone about crypto and illicit financing.

• • Correction: The above story has been updated to reflect that the speech happened on October 27 rather than Friday, November 3.

It’s not about one report

Chair Sherrod Brown (D, OH) and Sen. Elizabeth Warren (D, MA) of the Senate Banking Committee are not impressed with the digital assets industry’s efforts to dispute the connection between crypto and illicit financing portrayed by an October 10 article in The Wall Street Journal.

Punchbowl News Brendan Pedersen provides an overview of the latest and quotes Sen. Warren who says, “It’s not about one report… It’s about the whole structure of crypto that attracts some of the worst people around the world to move value around in a way that they cannot do through the ordinary banking system.” Fellow Banking Committee member Senator Cynthia Lummis (R, WY) chimes in and expresses concern about the damage done by the WSJ article. Read more. Continue reading “Treasury Warns Crypto Firms In Speech; SAB 121 Smacked Down By GAO”

tax comments skyrocket

The digital assets industry is keeping up the drumbeat on a request for comments by Treasury and the Internal Revenue Service regarding a tax rules for digital assets proposal. The deadline is November 13. A hearing is scheduled next week on November 7 with another, potentially, the next day according to the Federal Register. Some are already touting their appearance.

IRS’s director of digital assets Julie Foerster said just last week that the agency is expecting 8 billion “information returns” related to crypto. That’s 200 returns for each of the 40 million crypto buyers and sellers in the United States, she said. Read more.

Blockchain Association Senior Counsel Marisa Tashman Coppel tweeted on X yesterday: “Over 25,000 comments have been received by the IRS regarding their broker rulemaking proposal. Over 12,000 posted to the docket on regulations.gov. Clearly a sign something is wrong with the proposal.” See the comments.

what you should know: Another reason for so many potential forms is that ANY crypto transaction would need to be reported according to the proposed rule. There still is no di minimis exemption, for example. You buy an NFT or a cup of coffee with Bitcoin, your service provider needs to report it, potentially. Continue reading “Thousands Of Comments Pile Up For IRS; NYDFS Supports Parallel Stablecoin Regulation”

article correction

It wasn’t a retraction of the story run on October 10 connecting crypto to terrorist financing in the Wall Street Journal, but there was confirmation by the reporting team that interpretation of the data was incorrect.

A new correction posted Friday begins: “Palestinian Islamic Jihad and Hezbollah may have exchanged up to $12 million in crypto since 2021, according to crypto-research firm Elliptic. An earlier version of this article incorrectly said PIJ had sent more than $12 million in crypto to Hezbollah since 2021, citing Elliptic’s research.”

Scroll to the bottom of the article for the “Corrections and Amplifications” section.

article correction – reaction

Crypto venture capitalist Nic Carter observed the change in a tweet thread on X, “…while it’s great that WSJ acknowledged they’d made mistakes, the correction is still very weak.” Coinbase’s Chief Legal Officer Paul Grewal weighed in on X, “[The WSJ’s] lede still maintains that the funding supported Hamas attacks hinged on ‘One answer: cryptocurrency.’ There’s no evidence of that, and WSJ knows it.” Read that thread.

Given the fire the article started in Congress as shown by elements of terrorist financing hearings in the House and Senate last week, the stakes remain high regarding the actual data.

Meanwhile, the “crypto and terrorist financing” narrative has continued to propagate in the media. In an interview on CNN with Deputy Treasury Secretary Wally Adeyemo last week, the lower-third graphic for the interview reads, “U.S. Warns Crypto Firms Against Financing Hamas, Terror Groups.” See it. Continue reading “Correction Issued On Crypto And Terrorist Financing Article; SEC’s Peirce Derides LBRY Decision”

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”