On Oct. 29, the U.S. Attorney's Office for the Southern District of California announced that a criminal defendant pleaded guilty in federal court to operating a bitcoin exchange without registering with the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) and without complying with anti-money laundering (AML) laws. The defendant used a bitcoin exchange in Hong Kong to purchase more than $3 million in bitcoin in hundreds of separate transactions on behalf of customers who paid him in cash at above-market rates. According to the announcement, between 2016 and 2018 the defendant arranged to import more than $1 million in U.S. currency from Mexico and exchanged the dollars with a San Diego precious metals dealer, structuring transactions to avoid reporting requirements. In other AML-related news, a recent report claims that the Russia-based cryptocurrency exchange WEX had its funds frozen by the Malta-based Binance exchange after users claimed WEX was involved in money laundering. The same report indicates that WEX, where bitcoin trades well above global norms, is a follow-on to BTC-e, an exchange subject to an investigation in the U.S. and Greece regarding a $4 billion fraud and money laundering scheme.

Recent reports claim that the U.S. Financial Industry Regulatory Authority (FINRA) will soon issue guidance to broker-dealers on how to apply the SEC's Rule 15c3-3 to digital assets such as cryptocurrencies. And a multinational financial services firm has announced that it will launch cryptocurrency trading and custody services, amid news that competition is escalating among potential qualified custodians for digital assets. Meanwhile, the British government's Cryptoassets Taskforce recently released a comprehensive final report claiming that there is "limited evidence of the current generation of cryptoassets delivering benefits, but this is a rapidly developing market and benefits may arise in the future." H.M. Treasury, the Financial Conduct Authority and the Bank of England all pledged to support the development of "legitimate" crypto-related activities while cracking down on "illicit" activities.

According to a recent report, in June 2018, the Chinese Hangzhou Internet Court accepted blockchain data as evidence in a "right of communication" infringement case. The case centered on one company's allegedly unauthorized distribution of a newspaper article. The court relied in part on data from a blockchain-based third-party data preservation firm to conclude that the plaintiff's right of communication had, in fact, been infringed, and that all electronic data, including blockchain data, should be considered on a case-by-case basis. Meanwhile, the Thai Securities and Exchange Commission (SEC) recently issued warnings about investing in nine specific ICOs, and warned of crypto-based Ponzi schemes. Finally, multiple reports indicate that Hong Kong's Securities and Futures Commission (SFC) will regulate cryptoassets "to regulate the management or distribution of virtual asset funds in one way or another so that investors' interests would be protected either at the fund management level, at the distribution level, or both." The SFC announced that "[i]ntermediaries which distribute virtual asset funds, whether or not they are authorised by the SFC, are required to ensure compliance" with applicable regulations. Additionally, "the SFC will explore whether virtual asset trading platforms are suitable for regulation in the SFC Regulatory Sandbox," but it may also deny a license to such platforms altogether. The SFC cited valuation, volatility and liquidity risks; cybersecurity; AML/CTF risk; conflicts of interest; and fraud as potential risks for the crypto space, though it also said it "will keep the development of activities related to virtual assets in view and may issue further guidance where appropriate."

To read more about the topics covered in this week's post, see the following:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.