31 July 2024 • 33 minute read

Blockchain and Digital Assets News and Trends July 2024

Edited by:Margo Tank James Williams Elizabeth (Liz) Caires Eric Hall

This monthly bulletin is designed to help companies identify important legal developments governing the use and acceptance of blockchain technology, smart contracts, and digital assets.
While the use cases for blockchain technology are vast, this bulletin focuses on uses of blockchain and smart contracts in the financial services sector. With respect to digital assets, we have organized our approach to this topic by discussing it in terms of traditional asset type or function (although the types and functions may overlap) – that is, digital assets as:

Securities
Virtual currencies
Commodities
Deposits, accounts, intangibles
Negotiable instruments
Electronic chattel paper
Digitized assets

In addition to reporting on the law and regulation governing blockchain, smart contracts, and digital assets, this bulletin will discuss the legal developments supporting the infrastructure and ecosystems that enable the use and acceptance of these new technologies.

INSIGHTS

Digital asset broker tax reporting rules finalized: Top points for brokers and taxpayers

By Tom Geraghty and Kali McGuire

On July 9, 2024, final regulations were published in the Federal Register implementing a new digital asset transaction reporting regime, reflecting a number of changes to the proposed form of these regulations in response to more than 44,000 comments. These final rules implement provisions of the November 2021 Infrastructure Investment and Jobs Act which expanded Section 6045 of the Internal Revenue Code to require tax reporting by brokers of transactions involving the sale or exchange of digital assets. The final regulations are effective for transactions occurring on or after January 1, 2025, with brokers required to file Forms 1099-DA (Digital Asset Proceeds from Broker Transactions) for such transactions beginning in 2026. [Read more]

The saga of SAB 121: Losing a battle, yet gaining ground

By David Stier, Eric Forni, and Eric Hall

The lately concluded saga of Staff Accounting Bulletin 121 (SAB 121) is one of the more interesting tales in the long struggle for crypto acceptance.

On its face, SAB 121 was seemingly mild, not-legally-binding accounting guidance issued back in 2022 by the staff of the Securities Exchange Commission’s (SEC) Office of the Chief Accountant “express[ing] the views of the staff regarding the accounting for obligations to safeguard crypto assets an [SEC-regulated] entity holds for platform users.” Specifically, in the SEC’s view, safeguarding crypto assets for platform users gives rise to significant technological, legal and regulatory risks. Therefore, the staff determined “it would be appropriate” for financial institutions to report custodied crypto assets as a liability on their balance sheets.

This, the “appropriate” statement, is what sparked years of controversy. In the world of crypto regulation, the battle over SAB 121 is a gripping tale featuring industry backlash, rare bipartisanship, a presidential veto, and a failed attempt to overturn the veto. And, in July 2024, like a classic Hollywood epic, it winds up with a redemptive epilogue that offers hope for a sequel. [Read more]

STATUTORY AND AGENCY DEVELOPMENTS

FEDERAL DEVELOPMENTS

SEC

The SEC approves eight ETH spot ETFs for trading. On July 23, eight Ethereum exchange-traded funds (ETFs) went live for trading in US public markets. The SEC’s approvals of these Ethereum ETFs followed relatively soon after the SEC’s approval of bitcoin ETFs back in January – a process more than ten years in the making. The new ETFs offer retail investors liquid exposure to popular cryptocurrencies and appear to support their status as commodities rather than securities. Some commentators view approval of ETH ETFs as a sign that the Commission is open to considering ETF approval for “alternative” cryptocurrencies that do not share bitcoin’s development history. VanEck and 21Shares, two of the sponsors of the ETH ETFs, have already announced applications to pursue a Solana ETF.

House fails to overturn presidential veto of SEC accounting bulletin. On July 11, the House of Representatives failed to meet the two-thirds majority required to overturn President Joe Biden’s veto of a Congressional effort to nullify SEC accounting bulletin 121(SAB 121). The legislation had been the first-ever crypto-specific legislation to pass both houses. Issued in March 2022, SAB 121 requires companies that hold cryptocurrency for their customers to treat the assets as a liability on their balance sheets. Bipartisan lawmakers had criticized SAB 121 for the risk that it would trigger capital requirements under banking regulations that the SEC does not administer, thus discouraging institutions from offering safe custody options for customers with cryptocurrency. Though 21 Democratic lawmakers voted to overturn the veto, the vote fell short of the needed supermajority. Some dissenting members, however, expressed optimism that the SEC would permit modifications to SAB 121 that would ensure crypto custody services remain available while compliant with the bulletin. Indeed, several large banks who claim to have consulted with the SEC reportedly received permission to avoid reporting customer crypto assets on their balance sheets by implementing protections for those assets in the event of a bankruptcy or other business failure. For more on Congress’s efforts to nullify SAB 121, see our April 2022, August 2022, March 2024, and May 2024 issues.

STATE DEVELOPMENTS

Digital assets

California DFPI releases 2023 report on activities related to new state Consumer Financial Protection Law. On April 25, the California Department of Financial Protection and Innovation (DFPI) released its 2023 report outlining efforts under the new California Consumer Financial Protections Law (CCFPL). Such efforts included the launch of a “nationally recognized” web-based consumer protection tool, the Crypto Scam Tracker, to help Californians spot and avoid scams related to crypto assets. The tracker allows consumers to search by company name, scam type, or keywords to learn about complaints the DFPI has received from consumers with respect to allegedly fraudulent or deceptive operations related to crypto assets.

Florida exempts video game assets and stablecoins from “virtual currency.” On July 1, a new Florida law took effect that, among other things, redefines “virtual currency” to expressly exclude stablecoins and virtual currency used exclusively in video games. Confusingly, the definition also excludes “[d]igital units” that “[c]an or cannot be redeemed for real-world goods, service, discounts, or purchases” – criteria that would seem to have no exception. In context, however, the definition applies only to rules governing the disposition of unclaimed property that is in the custody of a bank or other custodian. Thus, stablecoins and video game currencies are exempt from rules that deem virtual currency “unclaimed” if its owner does not indicate an intent to keep it. The bill also prevents banks or other custodians from imposing fees on customers because their custodied assets include virtual currency.

INDUSTRY DEVELOPMENTS

Chainalysis report investigates trends in crypto-based money laundering and enforcement. On July 11, leading blockchain tracing and analysis company Chainalysis published a research report examining trends and techniques in cryptocurrency-based money laundering, and policy and prevention strategies to combat it. The report distinguishes between crypto-native money laundering, which involves funds derived from on-chain crimes, such as hacks, and the emerging trend of non-crypto native money laundering, which involves funds derived from off-chain crimes such as narcotics trafficking and fraud. Both types employ methods of layering and obfuscation to evade detection, such as intermediary wallets, mixers, privacy coins, and bridges. The report analyzes the destination of illicit funds, finding that over 50 percent of them end up at centralized exchanges, either directly or indirectly. A high concentration of these illicit funds flow through just a few conversion services and deposit addresses, such as bridges or mixers. The report also highlights the role of over-the-counter brokers, especially in China, as potential cash-out points for launderers. According to the report, jurisdictions, such as the European Union, Singapore, Hong Kong, the United Kingdom, the United Arab Emirates, and the United States are leading regulatory movements to establish key anti-money laundering (AML) requirements, such as know-your-customer (KYC), the Travel Rule, and stablecoin freezing capabilities. The report concludes by emphasizing the role of technology and innovation in money laundering prevention, such as blockchain intelligence, data analysis, automated systems, and education. It argues that technology can empower institutions to improve efficiency and outcomes while reducing reliance on cumbersome reporting requirements. It also stresses the need to balance privacy and security, as well as to manage compliance costs, in order to foster innovation while protecting against illicit activities.

New TRM Labs report shows global surge in crypto hacking. A new report from well-regarded blockchain tracking and analysis firm TRM Labs shows that the value of hacks and exploits involving cryptocurrencies has doubled in the first half of 2024 as compared to the same period in 2023. As of June 24, more than $1.3 billion worth of virtual assets have been stolen with the top five incidents accounting for more than 70 percent of that number. TRM suggested that the increase may be attributable to the general rebound in the value of popular bitcoin alternatives like Solana and Ethereum.

ENFORCEMENT ACTIONS AND LITIGATION

FEDERAL

BitMex pleads guilty to BSA violation. On July 10, the US Attorney’s Office for the Southern District of New York announced that crypto derivatives exchange BitMex had pleaded guilty to charges that it violated the Bank Secrecy Act (BSA) by failing to implement AML and KYC programs. According to the charging document, AML and KYC requirements applied to BitMex because it targeted US customers. BitMex customers could register for an account with nothing more than a verified email address. In one instance, a BitMex executive had notice that actors in Iran were using BitMex to launder cryptocurrency stolen in a hacking incident, but still failed to respond with AML measures. BitMex’s executives Benjamin Delo, Samuel Reed, and Gregory Dwyer were separately charged with violating the BSA by an indictment in 2020. They pled guilty in 2022 and agreed to pay $10 million in fines. The criminal actions supplement a civil enforcement action the CFTC brought in 2021that settled with BitMex’s agreement to pay $100 million.

Co-Founder of once-registered money transmitter Paxful pleads guilty to AML failures. On July 8, the Department of Justice announced that Estonian national Artur Schaback had pled guilty to “conspiracy to willfully fail to establish, develop, implement, and maintain an effective AML program.” Schaback served as co-founder and chief technology officer of a peer-to-peer virtual currency trading platform called Paxful. Paxful did not require any KYC information and presented fake AML policies that it never implemented. Though DOJ alleged Paxful operated as a money transmitter, the company was not charged with unlicensed money transmission because it was, for a time, registered with FinCEN. The case is also notable for how far back DOJ was aware of Schaback’s conduct. According to the charging documents, DOJ employed undercover agents to investigate Paxful’s compliance as far back as 2016 when he used plainly suspicious usernames such as “snowbunnyman” and “therealpureheroin.”

Digital assets

SEC moves to dismiss declarative relief action by Beba apparel company. On July 3, the SEC moved to dismiss a preemptive lawsuit brought by clothing brand Beba LLC and the DeFi Education Fund. According to the lawsuit, Beba created its own virtual currency, BEBA, which could be redeemed for the company’s handmade luggage and accessories. Beba planned to airdrop these tokens to its community members and accused the SEC of adopting an overly broad policy of treating the “vast majority” of digital assets as unregistered securities, quoting SEC Chair Gary Gensler. The lawsuit seeks a court determination that US securities laws would not apply to the BEBA airdrop. SEC argues that Beba cannot point to a specific policy that SEC would enforce against Beba. The lawsuit, filed in the Western District of Texas, is part of a growing movement of affirmative cases filed in jurisdictions perceived to be more favorable to crypto projects. The DeFi Education Fund is reportedly seeking to facilitate more affirmative cases like this one.

Federal court sustains allegations that DraftKings NFTs were unregistered securities. On July 3, a federal district court in Massachusetts denied a motion to dismiss on behalf of DraftKings Inc. Plaintiffs, who seek to represent a class of NFT buyers, allege that the professional athlete-themed NFTs were sold as unregistered securities in violation of federal securities laws. DraftKings’ motion to dismiss attacked this allegation head-on, arguing that its NFT collections failed the well-worn “Howey test” because they lack a “common enterprise” and there was no reasonable expectation of profit derived from DraftKings’ efforts. DraftKings argued that the value of each NFT is independent of any other and independent of DraftKings’ success. The NFTs therefore lacked horizontal or vertical privity required for a common enterprise. Rejecting these arguments, the court declined to credit DraftKings’ factual assertion that the value of its NFTs were tied to the success of the athlete they represent. DraftKings further argued that, because its NFTs trade on a public blockchain, their value exists independent of DraftKings’ success or its marketplace. This argument sought to distinguish DraftKings’ case from a similar case against Dapper Labs in which the district court emphasized that Dapper’s NFTs traded on a closed blockchain that Dapper Labs itself operated. Again, the court refused to credit this claim because, on a motion to dismiss, the court was required to treat plaintiff’s allegation as true. Plaintiff alleged that the DraftKings NFTs were kept in wallets that DraftKings controlled and therefore could only be sold on the DraftKings marketplace. Next, the court found that plaintiffs had plausibly alleged that DraftKings gave buyers a reasonable expectation of profit citing public statements on Twitter, Discord, Telegram chats, and podcast episodes that alluded to the financial benefits of trading the NFTs. Though the court appeared to credit DraftKings’ argument that the NFTs had a “consumptive,” rather than speculative, purpose, the court found those factual questions too uncertain to dismiss the complaint, leaving open the opportunity for DraftKings to negate this element with the benefit of factual discovery. Finally, the court found DraftKings’ promotional efforts satisfied the requirement that an expectation of profit was “derived from” DraftKings’ efforts. Overall, despite important factual distinctions, the Court’s decision closely mirrors the reasoning of a district court in the Southern District of New York that likewise sustained allegations that athlete-themed NFTs (in this case, sold by Dapper Labs) were unregistered securities. For analysis of the Dapper Labs case, see our February 2023 Insight.

Securities

HYDRO manipulators sentenced in trading bot manipulation scam. On June 25, the DOJ announced the sentencing of Michael Kane and Shane Hamilton, the two men behind the crypto company Hydrogen Technology. Hampton and Kane received sentences of nearly three and four years respectively for their use of automated trading bots to artificially inflate the price of HYDRO, a token they created through their company, thus inducing investors to buy in. In 2018 through 2019, Kane and Hamilton executed approximately $7 million in wash trades deriving nearly $2 million in profits. Hamilton’s case proceeded to trial in February at which the jury concluded that HYDRO was sold as an unregistered security.

SEC drops investigation into Paxos for its issuance of BUSD. On July 11, crypto trust company Paxos issued a press release announcing that it had received a formal termination notice from the SEC ending the agency’s investigation into Paxos’ involvement in BUSD, a US-dollar-backed stablecoin that Paxos issued on behalf of a major centralized cryptocurrency exchange. According to the press release, the SEC’s notice stated the Commission would “not recommend an enforcement action.” The SEC commenced its investigation with a Wells notice in February 2023 asserting that BUSD may have been sold as an unregistered security. Last month, however, a federal district court in Washington, DC rejected that theory in an SEC enforcement case in which Paxos was not a party. Nevertheless, further minting of BUSD remains halted following an order the New York Department of Financial Service issued in February 2023.

Briefing in Consensys suit against SEC continues despite parallel enforcement action. On July 2, the Texas federal judge presiding over a declaratory relief action against the SEC agreed to hear motions for summary judgment and the SEC’s motion to dismiss concurrently. The SEC is expected to seek dismissal based on the existence of a parallel enforcement action the Commission brought against Consensys Software Inc. in the Eastern District of New York on June 28. Consensys brought its own suit in the Northern District of Texas two months earlier seeking to preempt such an enforcement action after it received a Wells notice from the commission in April. On July 25, however, despite consenting to the July 2 scheduling order, the SEC filed a motion to amend it, now arguing that the Texas court should resolve the SEC’s motion to dismiss the case in light of the enforcement action in the Eastern District of New York and stay any motions for summary judgment. If the Texas court stands by its existing scheduling order, Consensys will have an opportunity to make its case in a jurisdiction that is thought to be more favorable to virtual asset service providers like Consensys. Consensys has until July 31 to oppose changes to the scheduling order.

Voyager executives agree to pay $6.5 million to class of consumers. On July 2, Southern District of New York Judge Castle preliminarily approved a settlement between the executives of the now-bankrupt crypto firm Voyager Digital Holdings and users who purchased the company’s VGX tokens or used Voyager’s Earn accounts which provide yield for lending virtual currency. The settlement aims to resolve claims that Voyager sold consumers unregistered securities and falsely represented that that Earn accounts were FDIC insured. Voyager and its CEO faced similar claims in enforcement actions brought by CFTC, FTC, SEC, and state regulators. For more on the litigation against Voyager, see our April 2022, July 2022, August 2022, October 2022, and October 2023 issues.

Silvergate settles with Federal Reserve Board, California Department of Financial Protection, and SEC. On July 1, the SEC announced that now-defunct bank Silvergate agreed to a multi-part settlement involving parallel consent orders from the Federal Reserve Board (FRB) and the California Department of Financial Protection and Innovation (DFPI). Silvergate, which primarily serviced crypto-focused clients, also agreed to a settlement with the SEC. According to the complaint, Silvergate, its CEO Alan Lane, and Chief Risk Officer Kathleen Fraher misled investors about the bank’s BSA and AML compliance programs while permitting $1 trillion in suspicious banking transactions. They also allegedly misrepresented their monitoring of customers involved in crypto, including FTX, to defray investor concerns that FTX had used Silvergate to facilitate fraud. In parallel actions, the FRB and DFPI alleged related “deficiencies” in Sivergate’s internal transaction monitoring. Silvergate agreed to a $50 million civil penalty in the SEC’s case that will be offset by a $43 million penalty to the FRB and $20 million to the DFPI.

Common blockchain scammer pleads guilty in crypto investment scam. On June 26th, the US Attorney’s Office for the Eastern District of Washington announced that Joseph McElhiney had pled guilty to wire fraud based on a common investment scam. McElhiney contacted his victims in person, specifically targeting Uber drivers, women he met on dating apps, and players of the video game Call of Duty. After gaining their trust, McElhiney promised he would invest the victims’ funds in a successful cryptocurrency investment fund known as MAC Blockchain Solutions. McElhiney then sent his victims to a fake investment tracking platform that purported to show their investments growing. In reality, however, McElhiney used the funds for gambling and his own expenses, in total stealing more than $350,000.

Commodities

Ponzi scammer ordered to pay $85 million in restitution. On July 3, the CFTC announced that a district court in the Northern District of Illinois had granted summary judgment in the Commission’s civil enforcement action against Sam Ikkurty and the group of companies he used to perpetrate violations of the Commodity Exchange Act (CEA) and CFTC regulations. According to the order, Ikkurty recruited victims through trade shows and webinars where he would promise 15 percent annual returns based on his investments in digital assets, and touted his own investing successes. In reality, Ikkurty’s past investments had lost 98.99 percent of their value over a matter of months, and he used the money from investors to pay off earlier investors. The order also found that Ikkurty was operating an unregistered commodity pool based on the court’s determination that bitcoin, Ether, and two other cryptocurrencies, OHM and Klima, qualify as commodities.

Virtual currency

CFTC and DOJ form joint “pig butchering” working group. On July 11, the CFTC and the Department of Justice’s Computer Crime and Intellectual Property Section’s National Cryptocurrency Enforcement Team (NCET) announced they had convened the first Fraud Disruption Conference to combat “pig butchering,” a scam technique that commonly involves cryptocurrency and, according to the agencies, has robbed consumers of billions of dollars each year. CFTC intends to host a series of these Fraud Disruption Conferences with other partners to combat pig butchering and other scams. This first conference featured participants from more than 15 federal agencies, including the SEC, Department of the Treasury, and Secret Service. Voyager previously settled related charges brought by the SEC and FTC in October 2023.

Connecticut man charged with illegal money transmission on behalf of romance scammers. On June 7, the US Attorney’s Office for the District of Connecticut announced charges against William McNeilly for his alleged role in an alleged money transmission business that serviced crypto fraudsters. According to the complaint, between 2019 and 2022, McNeilly exchanged more than a million US dollars for cryptocurrency, some of which he knew came from victims of romance fraud schemes. McNeilly used multiple bank accounts to move money to a cryptocurrency exchange. He faces one count of unlicensed money transmission and three counts of illegal money transactions.

Florida man convicted for physical theft of virtual assets. On June 25, DOJ announced that Florida resident Remy St. Felix had been convicted for his role in an international conspiracy to steal US citizens’ cryptocurrency. In a rare twist, the conspiracy involved physically invading the homes of cryptocurrency owners in North Carolina, Florida, Texas, and New York between 2022 and 2023. Because cryptocurrency requires digital authentication to change owners, St. Felix and his crew would kidnap victims and force them, often at gunpoint, to surrender access to their digital wallets. The criminals then laundered the cryptocurrencies through anonymity protocols such as Monero. St. Felix now faces a maximum sentence of life in prison.

Illicit finance

Owners of Empire Market charged with operating dark web marketplace. On June 14, the US Attorney’s Office for the Northern District of Illinois announced charges against Thomas Pavey and Raheim Hamilton, the two men allegedly behind dark web marketplace Empire Market. Empire Market allegedly permitted anonymous users to trade more than $430 million in illegal goods and services globally. Pavey and Hamilton are charged with conspiracy to engage in drug trafficking, computer fraud, counterfeiting, and money laundering, among other charges. Illicit goods included controlled substances counterfeit currency and stolen credit card information. Law enforcement seized more than $75 million worth of cryptocurrency.

STATE

Virtual currency

Pair of former solicitors general tag team appeal for Custodia bank. On July 3, two former solicitors general each filed amicus briefs in support of Wyoming-based cryptocurrency custody bank Custodia Bank, Inc. Custodia’s appeal in the Tenth Circuit Court of Appeal seeks to overturn the Federal Reserve Bank’s decision to deny Custodia a “master account,” which is necessary for accessing Federal Reserve Bank services. Donald Verrilli, Jr., solicitor general during the Obama Administration authored the Blockchain Association’s amicus brief, while Paul Clement, solicitor general during President George W. Bush’s administration, is credited for the amicus brief on behalf of the Digital Chamber of Commerce and the Global Blockchain Business Council-USA. Clement, who recently argued the Loper Bright case, which overturned the longstanding Chevron doctrine, cited the case to argue that Federal Reserve’s practice of approving Regional Federal Reserve presidents is an unconstitutional delegation of executive power. According to Clement, this practice permits federal officials to “effectively nullify the chartering decisions of state regulators” who are “co-equal under our dual banking system.” Custodia is chartered under a special Wyoming chartering regime for digital asset companies.

New York AG sues pair of crypto pyramid scammer. On June 6, the New York Attorney General announced civil charges against a cryptocurrency trading company NovaTechFx, its founders Cynthia and Eddy Petion, and a crypto mining company AWS Mining. According to the complaint, the defendants operated pyramid schemes that defrauded investors of more than a billion dollars in cryptocurrency and specifically targeted immigrant communities through prayer groups and WhatsApp groups. The defendants promised outlandish returns for investors from 2019 to 2023, but of the more than $1 billion invested, the complaint alleges less than $26 million was ever traded on the NovaTech platform. Much of the money went to “recruitment bonuses” and returns promised to earlier investors in the pyramid scheme.

Digital assets

Adoption status of UCC Article 12 and Controllable Electronic Records. As of July 16, the states of Pennsylvania, Louisiana, and Rhode Island have joined the other 20 states and the District of Columbia in enacting the 2022 amendments to the Uniform Commercial Code (UCC). The Illinois legislature has also adopted the amendments, and the bill is awaiting the governor’s signature. The 2022 amendments to the UCC address emerging technologies, providing updated rules for commercial transactions involving virtual currencies, distributed ledger technologies (including blockchain), artificial intelligence, and other technological developments. The amendments span almost every article of the UCC and add a new Article 12 addressing certain types of digital assets defined as Controllable Electronic Records (CERs). The amendments provide new default rules to govern transactions involving these new technologies and clarify the UCC’s applicability to mixed transactions involving both goods and services. For more information on CERs under UCC Article 12, see our prior article.

SPOTLIGHT ON INTERNATIONAL DEVELOPMENTS

DAC8 brings compliance burden to EU crypto asset companies. On May 16, the EU finance ministers provisionally agreed to a new rule that would require crypto asset operators not covered by other regulations as crypto asset service providers to report the transactions of their EU clients to tax authorities starting in 2026. This new rule is part of the EU Directive on Administrate Cooperation and accordingly is known as DAC8. DAC8 is the latest provision aimed at creating tax transparency and is meant to bring transparency to crypto transactions, particularly with regard to trading using crypto asset service providers or crypto asset operators located in another country, or when trading takes place directly between individuals or entities established in another jurisdiction. [Read more]

Stablecoin issuer Circle obtains key license under EU’s MiCA framework. On July 1, Circle, issuer of popular fiat-backed stablecoins USDC and EURC, announced that it had become the first global stablecoin issuer to comply with the EU’s Markets in Crypto-Assets (MiCA) regulatory framework. Circle obtained the final requirement for compliance when the French banking regulatory authority, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), issued Circle an Electronic Money Institution (EMI) license. The EMI license permits Circle to begin minting and redeeming USDC and EURC throughout the EU.

Argentine congress approves a tax amnesty law, which includes crypto assets within the tax regularization framework. On June 27, the Argentine National Congress approved law N°27,743 aimed at offering tax amnesty to Argentine citizens holding undeclared assets both domestically and internationally. These assets covered by the regularization program encompass cash, real estate, stocks, bonds, movable property, credits, rights, and also crypto assets, provided however, that the law excluded crypto assets held outside Argentina from the amnesty regime, permitting only those held within Argentina. The implementation of this law is pending regulation, with expectations that, in order to be considered “local,” the custodian must be registered with the Virtual Asset Services Providers (VASP) registry under the supervision of the Argentine Securities Commission (CNV). The VASP registry is mandatory for VASPs having a connection with Argentina through specified criteria, such as conducting operations using any “.ar” domain; having commercial agreements with third parties or affiliates that allow for the local receipt of funds or assets from Argentine residents; directing advertising or targeting Argentine residents; or generating more than 20 percent of total turnover in Argentina from activities that require VASP registration. In addition, while most assets will be assessed at the time of regularization, the amnesty law proposes to value crypto assets based on either their acquisition date or the regularization date, whichever is higher – a method criticized for potentially disadvantaging declarants. This tax amnesty bill is part of an economic reform package of laws that aims to attract large investment through beneficial tax advantages.

Argentine government approves the tokenization of goods through the warrants regime. On July 18, the Argentine government, through Decree 640/2024 (following Decree 70/2023), approved the tokenization of goods by updating the warrant regime governed by Law 9643. This update allows for the electronic registration and blockchain-based negotiation of warrants, which are certificates representing the deposit of goods and notes securing these deposits. Producers can now facilitate financing by selling these instruments on blockchain platforms. Key changes introduced by the decree include the authorization for the use of electronic signatures to validate warrant transactions on the blockchain, and the removal of the requirement for warehouses to be officially registered as depositors and warrant issuers. Now any depositor, including producers themselves, can custody goods and issue warrants. Tokenizations in Argentina may be made by virtual asset services providers (VASPs) that are registered before the Argentine Securities Commission (CNV). The VASP registry is mandatory for VASPs incorporated or residing in Argentina. Foreign VASPs must also register if they have a connection with Argentina through specified criteria, such as conducting operations using any “.ar” domain; having commercial agreements with third parties or affiliates that allow for the local receipt of funds or assets from Argentine residents; directing advertising or targeting Argentine residents; or generating more than 20 percent of total turnover in Argentina from activities that require VASP registration. VASPs conducting operations in Argentina that fall below $25,000 are not required registration.

European Banking Authority issues Travel Rule guidance to address money laundering and terrorist financing. On July 4, the European Banking Authority (EBA) published new guidelines on the “Travel Rule” which generally requires digital asset transactions to include certain categories of information with their transmission. The new guidelines introduce requirements for crypto asset service providers (CASPs) to collect information about the originator and beneficiary of a transaction. CASPs will also be subject to the same AML and counter terrorism funding requirements as traditional credit and financial institutions. These new requirements will bring the EU’s regulatory framework in line with the Financial Action Task Force (FATC) standards. Member states will next be required to report their adoption of the Guidelines once they are translated into official EU languages.

Central banks in Hong Kong and France announce CBDC collaboration. On July 5, the Banque de France (BDF) and Hong Kong Monetary Authority (HKMA) announced plans to collaborate on a wholesale central bank digital currency (wCBDC) making the HKMA the first central banking institution to participate in the European Central Bank’s experimental “Eurosystem” initiative. The collaboration will explore interoperability between each bank’s wCBDC infrastructure with a goal of optimizing settlement efficiency and laying the foundation for future tokenization experiments.

Global standards organization for banking supervision published final crypto asset disclosure framework. On July 17, the Basel Committee on Banking Supervision, a global standard-setting organization for bank regulators, announced it had finalized a disclosure framework for banks holding crypto assets. The framework proposes new templates for qualitative and quantitative disclosures aimed at promoting consistency between banks and reducing information disparities between banks and market participants.

2023 BIS survey reveals flourishing ecosystem of wholesale CBDC experiments. On June 14, the Bank for International Settlements (BIS) announced the result of its 2023 survey on central bank digital currencies (CBDC). Of the 86 central banks surveyed, more than 90 percent reported experimenting with central bank digital currencies and crypto. Overall, central banks were far more interested in wholesale CBDCs used for inter-bank settlements than retail CBDCs offered to consumers. Respondents cited interoperability and programmability as key challenges to be solved for CBDC to be used in cross-border payments. Though the survey also asked about central banks’ usage of crypto generally, the survey reported very little adoption of stablecoins.

The City of Buenos Aires (Argentina) allows corporate capital contributions using cryptocurrencies. On July 15, the Superintendency of Corporations of the City of Buenos Aires (IGJ) (Argentina) issued Resolution 15/2024, authorizing shareholders to contribute capital to companies with virtual assets. Shareholders must demonstrate prior ownership of the assets or their acquisition for this purpose. The assets must be deposited in a platform or virtual wallet of a Virtual Asset Service Provider (VASP) registered with the National Securities Commission, domiciled in Argentina and compliant with national legislation, under the company's name. Additionally, a statement from the VASP confirming the deposit of virtual assets in the company's account and the feasibility of enforced execution must be included. As the IGJ is the most relevant authority for corporate registries in Argentina, this regulation is expected to influence similar regulations across other jurisdictions within the country.

DLA PIPER NEWS

The Financial Times recognizes DLA Piper as one of the Most Innovative Law Firms in North America.

The Legal 500 ranks DLA Piper Tier 1 in FinTech: Crypto. DLA Piper was also ranked in Tier 2 for FinTech, and Margo Tank was ranked as a “Leading Individual.”

Chambers FinTech Legal ranks DLA Piper in all four categories including Band 2 for Blockchain and Digital Assets, with Margo Tank individually recognized in Band 3 in the Blockchain & Digital Assets and Payments & Lending areas.

DLA Piper’s Commodities, Digital Assets, and Carbon Compliance and Enforcement team draws on decades of collective experience in the commodities and securities industry to help companies navigate new and complex commodities enforcement matters, including those related to agriculture, metals, energy, digital assets, and carbon/sustainable commodities, among others.

RECENT AND UPCOMING EVENTS

DLA Piper attorneys presented at the following:

On July 24, Joseph Piesco spoke on a webinar panel entitled, “Digital Accessibility Lawsuits in 2024.”

In June, Michael Fluhr and Christina Sharma co-chaired a webinar panel entitled, “Cryptoassets: Emerging legal trends in common law and civil law jurisdictions.” The panel discussed how courts in the UK, Europe, and the US have been determining crypto asset disputes and what that means for creators, developers and owners. Panelists were Edwald Netten, Dan Jewell, Andrea Pantaleo, Matthew Miller, and Deborah Meshulam.

On April 5, David Stier, Vice Chair of the ABA’s Banking Law Committee – Bank Secrecy Act and Anti-Money Laundering subcommittee, spoke on a panel titled “Cryptocurrency & Illicit Finance: Risk Mitigation Strategies” at the ABA’s Business Law Section Spring 2024 meeting in Orlando, Florida.

On April 10, Eric Forni spoke on panel titled “Hot Topics in SEC and DOJ Enforcement” in Miami. The panel covered enforcement developments and SEC policy on crypto assets.

PUBLICATIONS

In the newly published book, Banking [on] Blockchain: A Legal and Regulatory Primer, published by the American Bar Association, David Stier, Emily Honsa Hicks, and Eric Hall co-authored a chapter on AML/KYC requirements and the BSA, as well as provided general editorial assistance on other chapters. The book, a comprehensive guide to the legal and regulatory landscape surrounding the use of blockchain technology, decentralization, and digital assets within the financial services while offering guidance on how financial institutions may navigate the complex regulatory environment.

Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, includes chapters by Meshulam, Fluhr, and Margo Tank.