CBDC Research Published, Fintech Firms and Banks Launch Crypto Initiatives
By Robert A. Musiala Jr.
The Boston branch of a major U.S. banking agency and the Massachusetts Institute of Technology recently released “the findings of their initial technological research into a central bank digital currency, or CBDC.” Among other things, the research “describes a theoretical high-performance and resilient transaction processor for a CBDC that was developed using open-source research software, OpenCBDC.” According to the press release, “The work produced one code base capable of handling 1.7 million transactions per second … within architectures that support secure, resilient performance and offer the significant technological flexibility required to adjust to future policy direction.”
A recent press release by U.K.-based Wirex announced the company’s expansion into the U.S. market. According to the press release, “Wirex seeks to revolutionize payments in the US, offering the ability to buy, hold, exchange and sell US dollars as well as 37 different cryptocurrencies … State-of-the-art technology links the app to a contactless … debit card, allowing customers to spend their cryptocurrency online and in-store at over 61 million locations globally.”
Another recent report describes an initiative by a major Japanese bank to “bring about instant settlement of securities transactions by using blockchain for trading and a cryptocurrency for payment.” According to the report, the Japanese bank will seek to implement the solution in part by issuing its own stablecoin tied to the Japanese yen.
According to a recent report by a Big Four accounting and consulting firm, “Investment in the crypto and blockchain space soared in 2021, rising from $5.4 billion in 2020 to over $30 billion.” The same Big Four firm recently issued a press release noting that its Canada member firm “has completed an allocation of cryptoassets to its corporate treasury, the firm’s first direct investment in cryptoassets.” According to the press release, “[t]he allocation includes Bitcoin (BTC) and Ethereum (ETH).”
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US Department of Treasury Guidance Notes NFT Money Laundering Risks
By Robert A. Musiala Jr. and Nicholas C. Mowbray
The U.S. Department of the Treasury recently published a study on the facilitation of money laundering and the financing of terrorism through the trade in works of high-value art. The study addressed NFTs, noting the following:
- “[T]he emerging online art market may present new risks … (i.e., the purchase of non-fungible tokens [NFTs], digital units on an underlying blockchain that can represent ownership of a digital work of art).”
- “Depending on the nature and characteristics of the NFTs offered, [NFT trading] platforms may … come under FinCEN’s regulations.”
- “NFTs … that are used for payment or investment purposes in practice may fall under the virtual asset definition, and service providers of these NFTs could meet the FATF definition of a VASP.”
- “[P]latforms or other persons doing business transferring virtual assets during the buying or selling of NFTs may have U.S. AML/CFT obligations under FinCEN’s rules for money service businesses ….”
- “NFTs can be used to conduct self-laundering, where criminals may purchase an NFT with illicit funds and proceed to transact with themselves to create records of sales on the blockchain.”
- “The ability to transfer some NFTs via the internet without concern for geographic distance and across borders nearly instantaneously makes digital art susceptible to exploitation by those seeking to launder illicit proceeds of crime ….”
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A Major US Banking Agency Prioritizes Crypto; Market Integrity in Focus; UK Updates DeFi Tax Guidance
By Nicholas C. Mowbray
According to a statement by a major U.S. banking agency this week summarizing its priorities for the coming year, “The rapid introduction of … crypto-asset or digital asset products into the financial system could pose significant … risks” and federal banking agencies should “carefully consider the risks … and determine the extent to which banking organizations can safely engage in crypto-asset-related activities.” The statement calls for the issuance of “robust guidance” to the banking industry “on the management of prudential and consumer protection risks raised by crypto-asset activities.”
In a press release this week, various leaders in the digital asset industry announced the launch of the Crypto Market Integrity Coalition (CMIC). According to the press release, the CMIC is “an industry-defining pledge focused on cultivating a fair digital asset marketplace to combat market abuse and manipulation and promote public and regulatory confidence in the new asset class.” The CMIC issued an open invitation to industry members committed to advancing market integrity.
In a recent update to its “Cryptoassets Manual,” HM Revenue & Customs (HMRC) updated guidance regarding the U.K. tax implications of DeFi lending and staking, and whether income earned from such activities is characterized as capital or revenue. A U.K. taxpayer cares about this character distinction because of limitations on the ability to offset losses from one against gains from the other, and because of the potential for different tax rates. The guidance notes that due to the ever-evolving nature of DeFi, it is impossible for HMRC to set out all the circumstances in which a lender or liquidity provider could earn a return from their activities. Instead, the guidance seeks to establish guiding principles to determine the nature of a receipt or an expense as either capital or revenue. The guidance instructs taxpayers that a return is considered revenue where it is earned by providing a service or is in the form of interest, and capital where it is realized from capital appreciation of an asset.
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DOJ Charges Couple for Laundering $4.5B in Crypto, UN Reports Crypto Threats
By Alex Karambelas
According to a recent press release by the U.S. Department of Justice (DOJ), a New York married couple was arrested in connection with a large-scale cryptocurrency laundering scheme. According to the press release, the couple has been charged with conspiring to launder approximately $4.5 billion in cryptocurrency stolen in a 2016 hack of the Bitfinex cryptocurrency exchange. The press release notes that of the nearly 120,000 bitcoins stolen in the breach, law enforcement has recovered more than 94,000, presently valued at $3.6 billion, making this the DOJ’s largest financial seizure ever. Lichtenstein and Morgan both entered pleas of not guilty during their arraignments in Federal District Court in Manhattan on Tuesday.
According to a recent report referencing a confidential United Nations report, North Korea continues to fund its nuclear and ballistic missile programs through cyberattacks on cryptocurrency firms and exchanges. The report indicates that stolen cryptocurrency is still an important source of revenue for Pyongyang, against the backdrop of ongoing international sanctions and economic pressures caused by the COVID-19 pandemic. The U.N. report reportedly links the theft of over $400 million in cryptocurrency and digital assets to North Korean actors over the past year alone.
In a final notable item, a decentralized autonomous organization (DAO) has reportedly collected a record-breaking $38 million in ether for the defense of WikiLeaks founder Julian Assange. AssangeDAO began accepting donations last week and has already surpassed the prior record holder, ConstitutionDAO, which tried to buy a copy of the U.S. Constitution at auction last year. According to its website, AssangeDAO plans to use contributions to bid on a nonfungible token (NFT) created by Assange and the digital artist Pak. The proceeds of the auction will go toward Assange’s legal defense through a German nonprofit, according to an interview with Pak earlier this week.
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