Tag: tokenization

letter – terrorist financing

Senator Shelly Moore Capito (R, WV) sent a letter to the U.S. Treasury’s Under Secretary for Terrorism and Financial Intelligence Brian Nelson last Thursday expressing her concerns and asking a series of questions around terrorist financing via crypto assets and products such as mixers.  Read her press release.

Her first question to Nelson is: “Has Treasury begun an independent and comprehensive investigation into the extent FTOs (foreign terrorist organizations) are reportedly avoiding sanctions through the use of digital assets, particularly actors funding Hamas and affiliated organizations?”

The tone of Capito’s letter is reminiscent of the October 26 letter from Senator Cynthia Lummis (R, WY) and Rep. French Hill (R, AR) which also addressed concerns on terrorist financing including the use of crypto exchange Binance and the Tether USD stablecoin. At the time, Lummis was also trying to push through her NDAA amendment – a compromise of sorts – which would have required “federal regulators to enact strong examination standards that will help prevent the utilization of cryptocurrencies in illegal activities” according to an October 23 press release.

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Capito’s in-state colleague/rival – Senator Joe Manchin (D, WV) – is a co-sponsor of Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act (S.2669).

what you should know: The public message is clear on both sides of the aisle in Congress: terrorist financing and money laundering concerns need to be rooted out in crypto. Neither party wants to look like they approved of terrorist financing and money laundering via digital assets. But, the pro-crypto forces don’t want draconian regulation to harm U.S. opportunity in digital assets. Whereas, the “anti-crypto army” wants digital assets to be severely restricted if not altogether prevented from accessing the U.S. financial system. Continue reading “Letters From Capito, Warren Intensify Crypto Concerns; PAC Eyes 2024 Election”

SEC denies Coinbase

To no one’s surprise, a rulemaking petition filed by Coinbase was denied by the Securities and Exchange Commission (SEC) on Friday as its Democratic majority prevailed in a 3-2 decision led by Chair Gary Gensler. The rulemaking would have presumably created a path for rules for digital assets and companies operating in the sector.

In a statement, SEC Chair Gary Gensler explained his support for the denial with three reasons: “First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.”

more tips:

U.S. SEC Denies Coinbase’s Push for Crypto Regulations as ‘Unwarranted’ – CoinDesk

what you should know: This decision was not a surprise. The SEC was the judge, after all. And given Chair Gensler’s past decisions and statements on crypto, he will continue to shoot down anything that gives digital assets hooks into his agency unless the courts intercede (see Grayscale) -or Congress finally, and successfully, enters the picture.

SEC denies Coinbase – reaction

Willkie Farr counsel Justin Browder noted on X a “slight retreat” in Gensler’s statement whereas crypto assets used to be assumed as securities, now crypto assets are securities when “offered and sold as a security.”

Hester Peirce and Mark Uyeda, the Republican minority on the SEC’s commission, expressed resignation that the SEC was unwilling to engage in the rulemaking with Coinbase but held out a fig leaf to industry by saying in a statement, “While we are disappointed that the Commission is not hosting these important conversations, we will have an open ear for conversations that others host and the ideas that emerge from those conversations.” Continue reading “Coinbase Rulemaking Denied By SEC; GAO Delivers NatSec Report On Digital Assets”

Nickel to step aside

Rep. Wiley Nickel (D, NC) will not run for re-election in the 119th Congress. Like his state colleague, House Financial Services Chair Patrick McHenry (R, NC), 2024 will be Nickel’s last year in the House. He has been an important Democratic voice in support of digital assets as a member of House Financial Services and voted in favor of the stablecoin and market structure bills in July’s Committee markup.

Citing redistricting as the cause, Nickel explained on X:

“Republicans have rigged the system to favor themselves and I don’t have a path to run for re-election in the 13th District. But I’m not giving up and neither should you. Next year, I’m going to be working to elect North Carolina Democrats up and down the ballot in 2024. Then, in January I’m going to look to flip our U.S. Senate seat blue. Phil Berger and Legislative Republicans can’t gerrymander a statewide election.” Read more from NBC News.

what you should know: How Nickel uses his last year in Congress will be of interest especially if he runs for the Senate. More Democratic advocates in the Senate would no doubt be welcomed by the pro-crypto “army.” Senator Thom Tillis (R, NC), Nickel’s potential 2026 adversary, has expressed interest in digital assets policy and sponsored a bill designed to prevent the co-mingling of customer funds called “Proving Reserves of Others Funds (PROOF) Act” [S.3087]. Senator John Hickenlooper (D, CO) is a co-sponsor. But, Nickel represents the other side of the generational divide. Continue reading “Democrat Nickel To Leave House, Aims At 2026 Senate; Senate Stablecoin Bill Update”

letter – OCC blunder

Republican members of the House Financial Services (HFS) Committee have sent a letter to the Office of the Comptroller of the Currrency’s Acting Comptroller Michael Hsu (D) demanding answers for his agency’s recent hiring blunder. The OCC hired a new Deputy Comptroller and Chief Financial Technology Officer in April, but his resume was discovered to be falsified and he was quietly let go over the summer and replaced by an OCC insider – read about it in The Information.

In a Congressional letter dated December 7, Rep. Andy Barr (R, KY), Rep. Bill Huizenga (R, MI), and Rep. French Hill (R, AR), who is Chairman of the Digital Assets, Financial Technology and Inclusion Subcommittee, ask for more info on OCC hiring practices and note that “To date, there has been no clarification provided by the OCC surrounding the reports regarding the agency’s prior Deputy Comptroller and Chief Financial Technology Officer. During the hearing at which you testified on November 15, 2023, it was made clear by Chair [Patrick McHenry (R, NC)]: ‘the stakes are too high to take your eyes off the ball.’” The Members ask for a response by December 21.

Read the letter. And, read the House Financial Services press release.

what you should note: At a November HFS prudential regulator hearing, the OCC’s Hsu expressed surprising “concerns” about the Securities and Exchange Commission’s (SEC) bank custody rules and carrying digital assets on a bank’s balance sheet. Will Republicans “go hard” on a Democrat who has expressed a dissenting opinion to Democratic leadership’s (including SEC Chair Gary Gensler)?

AML/CFT compromise

In Punchbowl News, House Financial Services (HFS) Chair Patrick McHenry (R, NC) participated in another interview discussing his 2024 agenda. With the Senate looking to to address anti-money laundering (AML) and countering the financing of terrorism (CFT) in digital assets, the Chair saw opportunity for compromise with his bicameral colleagues saying, “We want to identify workable policies for [Bank Secrecy Act]-AML as it relates to digital assets. We want to make sure that the regime works and is effective. And I think we need a broader policy effort to make that work.” Read more.

Also of note, McHenry is not conciliatory on stablecoin legislation – i.e.  the Fed isn’t getting any power over state-issued stablecoins. Continue reading “Congress Sends Letter On OCC Hiring Blunder; Crypto Advertising Door Cracks Open”

warning crypto lawyers

At a continuing legal education event run by the American Bar Association last Thursday, Securities Exchange Commission (SEC) Chair Gary Gensler participated in an interview where he offered his view on lawyers involved with crypto clients.

Fintech policy publication Capitol Account, which covered the event, reported that a show of hands revealed roughly 40% of the audience’s lawyers were working in crypto.  Gensler responded, “That’s your field, if those are your clients…without pre-judging any one of them. And the public if they lose trust in this little area (crypto), this little corner of the market, and you as gatekeepers facilitate that? That hurts the rest of the market, too.” Read more in Capitol Account.

more tips:

Crypto publication CoinDesk named Chair Gensler to its 2023 Most Influential list last week. In appreciation, the Chair responded on X on Friday, “Thank you @CoinDesk, I guess?”

what you should know: The message coming from Democratic leadership – including Chair Gensler – to industry remains, “If you touch crypto, stop touching.” Its message to voters is “We are going to stop crypto in the U.S.” The big question: will voters care enough to make it a needle-mover in the 2024 general election one way or the other?

SEC sanction update

“The [Securities and Exchange Commission] wants more time to respond to a judge’s accusation that it made ‘materially false and misleading representations’ in a lawsuit against the crypto company DEBT Box.” Fortune reporter Leo Schwartz on X Continue reading “Crypto Lawyers Get Warning From SEC Chair; McHenry Talks 2024 Agenda”

Terrorism Financing Prevention

Punchbowl News’ Brendan Pedersen reported yesterday that Senator Mark Warner (D, VA) is introducing a new piece of legislation aimed at sanctioning any firm that is facilitating payments to “Foreign Terrorist Organizations” rather than the current limits of the law which focuses on Hezbollah. Read more.

Known as the “Terrorism Financing Prevention Act,” co-sponsors include the CANSEE Act [S.2355] team of Senators: Mike Rounds (R, SD), Jack Reed (D, RI) and Mitt Romney (R, UT). CANSEE takes aim at money laundering within decentralized finance or DeFi.

Pedersen provides a copy of the bill here.

Later in the day, a press release from Sen. Warner’s office was issued with more details… “The bill also contains a key provision from the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act the senators previously introduced, giving FinCEN authority to restrict transactions with ‘primary money laundering concerns’ that do not involve a U.S. correspondent bank account.  This provision will provide FinCEN with appropriate tools to address threats involving digital assets and non-traditional finance networks, just as they currently can where correspondent accounts are involved.” Read the release.

what you should know: Since the terrorist attacks in Israel on October 7, anti-money laundering and terrorist financing legislation related to crypto has reached a new level of urgency.  Whether a bill such as Senator Warner’s can pass both houses while digital assets remains a key part of the House Financial Services’ agenda remains a question.

updating BSA

Senator Elizabeth Warren (D, MA) continued her media campaign in support of her Digital Assets Anti-Money Laundering Act [S.2669] and appeared on CNBC’s Squawk Box.  CNBC’s Andrew Ross Sorkin asked Warren if she supported approval of a Bitcoin Spot market ETF by the SEC and its implications for Americans who would invest.  She demurred but wanted to focus on the law enforcement aspects of crypto and the Bank Secrecy Act (BSA), specifically, which hasn’t been amended since the 70s according to the Senator. She added, “What we need to do is we need to update [the BSA] again.”  See the clip on X. Continue reading “AML Legislation Keeps Rolling In Senate; New Terrorism Financing Prevention Act From Senator Warner, Others”

close it down

Yesterday’s Senate Banking hearing brought together leaders of the traditional financial system of the United States for an annual oversight hearing (video). Senators took the opportunity to ride various hobby horses of the moment.  Senator Elizabeth Warren (D, MA) used her 5-minute Q&A to promote her Digital Asset Anti-Money Laundering legislation [S.2669] while questioning JP Morgan CEO Jamie Dimon, a well-known critic of all things crypto.

Dimon may hate on crypto, but his bank is full-steam ahead on using blockchain rails for his own projects such as JPM Coin.

The Warren Q&A included the following:

Senator Warren: “Today’s terrorists have a new way to get around Bank Secrecy Act: cryptocurrency. Last year, an estimated $20 billion in illicit crypto transactions funded every kind of dangerous criminal. North Korea has funded at least half its missile program, including nuclear weapons, using the proceeds of crypto crime. And Israeli officials have confirmed that Hamas received millions of dollars through crypto transactions including ‘large sums from Iran.’ Mr. Dimon, you’ve been CEO of JP Morgan for almost two decades. Can you explain why crypto is such an attractive financial tool for terrorists, drug traffickers and rogue nations?” Continue reading “Senate Banking Hearing Gets Warren-Dimon Treatment; NDAA Amendment Flames Out”

McHenry exits

Shortly after the news was leaked, House Financial Services Chair Patrick McHenry (R, NC) announced on X that the jig was up: “I will be retiring from Congress at the end of my current term. I believe there is a season for everything and—for me – this season has come to an end. I look forward to what comes next for my family and me.”

In a press release, McHenry expressed confidence that his departure after 20 years, Congress was in “good hands” with the Members who remain and are to come: “I truly feel this institution is on the verge of the next great turn. Whether it’s 1974, 1994, or 2010, we’ve seen the House evolve over time. Evolutions are often lumpy and disjointed, but at each stage, new leaders emerge. There are many smart and capable members who remain, and others are on their way. I’m confident the House is in good hands.” Read the statement.

McHenry exits – reaction

Politico’s Eleanor Mueller reported on X that fellow HFS Committee member Rep. Jim Himes (D, CT), who supported both the stablecoin and digital asset market structure bills during the HFS markup, was “devastated” by McHenry’s decision: “He’s one of the real voices of sanity around here. This institution is gonna be a lot weaker for his absence.”

Proving that McHenry impact reached across TradFi and decentralized finance advocates, the American Bankers Association tweeted in appreciation of Chair McHenry and “for his years of dedicated service to the people of North Carolina and his ongoing efforts in the House [Financial Services Committee] to ensure our banking system remains the envy of the world. ABA looks forward to working with you as you serve out your term.” And, Crypto Council of Innovation CEO Sheila Warren said on X that Chair McHenry’s “consistent approach to coalition building, willingness to work in a bipartisan nature, and constructive engagement with industry. He will be deeply missed when he leaves Congress.”

According to Punchbowl News’ Brendan Pedersen, former Speaker Kevin McCarthy (R, CA) said that “McHenry’s done a ‘tremendous’ job… ‘When Rep. [Steve Scalise (R, LA)] was shot, doing the whip job — I don’t think there’s a better whip than Patrick. I think he would have been a great speaker…”

DeFi Education Fund said in a statement on X, “Chairman McHenry’s level-headed, bipartisan leadership and receptiveness to the idea that novel technologies require fit-for-purpose regulations has been (and will continue to be over the next year) a great service, and we wish him all the best in his future endeavors.”

Coinbase CEO Brian Armstrong chimed in on X to McHenry’s tweet saying, “Thank you for your service to the country!” Continue reading “House Financial Services Chair McHenry Announces Retirement; What’s Next”