Blockchain Association Responds to Elizabeth Warren, Says Crypto Can Disrupt ‘Too Big To Fail’ Banks

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Blockchain Association files support in suit to lift Tornado Cash sanctions

November 21, 2023 Coin Telegraph

The crypto advocacy group said OFAC must act within its statutory authority by sanctioning bad actors, not open-source software tools.

The Blockchain Association has thrown fresh support behind six plaintiffs suing the United States Treasury Office of Foreign Assets Control (OFAC) over its sanctions on the crypto mixer Tornado Cash.

In a Nov. 20 amicus curiae brief to a U.S. appellate court, the crypto advocacy group argued OFAC’s decision to sanction the privacy protocol was not only unlawful but exceeded its statutory authority and was both “arbitrary and capricious” — contrary to the U.S. Constitution.

It’s the second amicus brief filed by the Blockchain Association supporting a group of Tornado Cash users appealing a lower court’s ruling that upheld OFAC’s decision to add the cryptocurrency mixer to its list of sanctioned entities.

Today we filed an amicus brief in the 5th Circuit appeal of Van Loon v. Treasury regarding OFAC’s sanctions against Tornado Cash.

Read Senior Counsel @MTCoppel's thread below for more. https://t.co/1pmSAt1Bds https://t.co/c5ScaTDr9N pic.twitter.com/e9ySvcKdeM
— Blockchain Association (@BlockchainAssn) November 20, 2023

Blockchain Association senior counsel Marisa Coppel emphasized in a Nov. 20 statement that OFAC needs to focus on sanctioning bad actors rather than outright banning tools, which she claimed it has no authority over.

“OFAC must see Tornado Cash for what it is: a tool that can be used by anyone,” Coppel said. “Rather than sanctioning a tool with a lawful purpose, OFAC should remain focused on the bad actors that misuse such tools.”

“OFAC’s action sets a dangerous new precedent that drastically exceeds their authority and jeopardizes law-abiding Americans’ right to privacy.”

In its brief, the Blockchain Association suggested OFAC should act within the bounds of the law by seeking approval from Congress to ban crypto mixers such as Tornado Cash.

“The proper remedy is to seek legislation from Congress that would provide supplemental authority in the uniquely decentralized digital asset context — not to improperly stretch its existing authorities,” it said.

“Such a power-grab would be a slippery slope that could threaten all manner of internet-based tools that have heretofore been freely available.”

The Blockchain Association has long held that Tornado Cash has no owner or operator and can function automatically without human intervention or assistance.

5/ OFAC’s authority only extends to persons or property…the Tornado Cash software is neither.

There is no owner.
No operator.
It functions autonomously.
And immutably.
— Marisa Tashman Coppel (@MTCoppel) November 20, 2023

OFAC first sanctioned Tornado Cash in August 2022. It alleged that individuals and groups had used the mixer to launder more than $7 billion in cryptocurrencies since 2019, including the $455 million stolen by the North Korea-affiliated Lazarus Group.

Crypto exchange Coinbase also backed the suit, pledging to

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Coin Center and Blockchain Association slam ‘unworkable’ US Senate DeFi bill

July 21, 2023 Coin Telegraph

Blockchain Association

Coin Center said the bill was unconstitutional, while the Blockchain Association called it incompatible with blockchain technology.

Crypto industry advocacy bodies have slammed a newly proposed United States Senate bill for what they say is a confused approach to regulating the decentralized finance (DeFi) sector.

On July 20, crypto think tank Coin Center and crypto advocacy group the Blockchain Association released separate statements describing the legislation as a “messy," "unworkable," and "unconstitutional” way of regulating DeFi.

Introduced on July 18, the bipartisan Crypto-Asset National Security Enhancement Act (CANSEE) bill aims to reign in money laundering violations in DeFi.

If passed, the legislation would extend new penalties to anyone who “controls” or “makes available an application designed to facilitate transactions using a digital asset protocol.” They would also be required to adhere to anti-money laundering and financial reporting standards.

The definition of who or what “controls” a DeFi protocol was left to be made by the U.S. Secretary of the Treasury — a move some pundits say will lead to excessive controls being applied to DeFi.

In its July 20 blog post, Coin Center wrote the bill gives “virtually unbounded discretion to the Secretary to decide what it would take to designate one as having ‘control’ of a protocol.”

Additionally, the think tank declared the bill to be unconstitutional as it would crack down on software developers who — as an extension of free speech — have a First Amendment right to publish code.

We've looked at the new bill by @SenJackReed, @SenatorRounds, @SenatorWarner,
and @SenatorRomney that would extend sanctions penalties and AML obligations to developers of decentralized protocols. It's unconstitutional and ill-considered. Our analysis: https://t.co/TR2rsAAQHK
— Jerry Brito (@jerrybrito) July 20, 2023

Coin Center was also concerned with the scope of the legislation and said by design DeFi is decentralized — meaning it could prove legally troublesome to enforce control over a given protocol.

Kristin Smith, the CEO of the Blockchain Association echoed Coin Center’s concerns and described the new legislation as unworkable.

Blockchain Association CEO @KMSmithDC released the following statement following today's introduction of the Crypto-Asset National Security Enhancement Act of 2023:

“The Crypto-Asset National Security Enhancement Act of 2023, introduced today by Sen. Jack Reed (D-RI), is an… pic.twitter.com/S65XSUheTW
— Blockchain Association (@BlockchainAssn) July 19, 2023

Smith took aim at the bill for overstating the presence of money laundering in DeFi and crypto more broadly.

“At present, illicit transactions represent a small fraction of total volume: only 0.24% of all digital asset transactions in 2022, far less than in traditional finance.”

Smith said federal law enforcement agencies are already equipped with the tools and expertise to combat this “relatively small but important issue.” Ultimately, Smith denounced the new punitive measures in the bill as redundant.

While crypto organizations have taken aim at the broad scope of the bill, an April 7 U.S. Treasury report found many DeFi protocols are more centralized than claimed, often featuring a high concentration of funds and voting power in the hands of a few token holders.

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Blockchain Assoc. requests info on Prometheum over ‘suspicious’ approval

June 16, 2023 Coin Telegraph

Blockchain Association

A FOIA request with the SEC regarding Prometheum has been filed, while others found former FINRA and SEC staffers among the firm's ranks.

United States crypto lobby group Blockchain Association has filed a request with the U.S. Securities and Exchange Commission, seeking information about the formerly little-known crypto company Prometheum.

The company became the center of the crypto industry's attention this week when its CEO Aaron Kaplan testified at a House hearing and gave its support of regulating crypto under securities laws and the SEC, a position that’s starkly opposite to other vocal proponents of the industry.

On June 15, Blockchain Association counsel Marissa Coppel said the group filed a Freedom of Information Act (FOIA) request to the SEC seeking documents and communications related to Prometheum.

In a series of tweets, Coppel said she was “suspicious” Prometheum was approved as a special purpose broker-dealer (SPBD) for digital assets “in the midst of aggressive SEC enforcement.”

Coppel was also skeptical at how Kaplan was able to provide testimony at a Congressional hearing on regulations for the industry.

2/ The CEO somehow gets a seat in front of Congress and argues that Prometheum represents the compliant path for digital assets.

And they've paid $1.5+ million in sales commissions to a Chinese-affiliated entity with quite the regulatory track record.

Hmmm
— Marisa Tashman Coppel (@MTCoppel) June 15, 2023

FOIA requests are submissions by members of the public to U.S. federal agencies that can ask for records on any topic, in this case, the SEC’s information on Prometheum.

At the June 13 House hearing Kaplan said his firm did not receive any “additional exemptive relief from the SEC” when questioned by Representative Mike Flood.

For those that didn’t stick around until the end of the @FinancialCmte hearing today, this exchange between @USRepMikeFlood and @PrometheumInc CEO Aaron Kaplan is an absolute must-watch.

Flood explicitly lays out why Prometheum’s claims that their SPBD approval is evidence of a… pic.twitter.com/yCDDKHiLea
— Alexander Grieve (@AlexanderGrieve) June 13, 2023

Former SEC and FINRA staff

Meanwhile, others have raised suspicion over the background of the Prometheum team, noting that some are former SEC and Financial Industry Regulatory Authority (FINRA) staffers.

Prometheum’s chief compliance officer, Joseph Zangri, was an SEC enforcement attorney in the mid-to-late 1990s. In addition, the company’s chief regulatory officer, Rosemarie Fanelli joined the company in May 2021 after a nearly 14-year stint in senior roles at FINRA — a self-regulatory organization for the U.S. securities industry.

The co-founders and co-CEOs of Prometheum — Aaron and Benjamin Kaplan — also have a small degree of separation from former SEC staff. The Kaplans are attorneys at the law firm Gusrae Kaplan which states it was established “by a former Chief Attorney of the SEC’s Division of Enforcement.”

Who look alot like these guys: https://t.co/MPQjKH0GbL pic.twitter.com/bcu4sgcv7s
— Matt Walsh (@MattWalshInBos) June 14, 2023

Gusrae Kaplan co-founder, Martin H. Kaplan, is also a Prometheum chairman.

It is not out of the ordinary for crypto companies to hire former regulatory staffers, however.

Following a lawsuit from the SEC, Binance.US hired former SEC enforcement co-director George Canellos as a lawyer. The newly appointed chief legal officer of stablecoin issuer Circle has a resume spanning many government roles including the U.S. Treasury and the Commodity Futures Trading Commission.

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Crypto lobbyists still fighting to axe ‘unlawful’ Tornado Cash sanctions

June 5, 2023 Coin Telegraph

amicus brief

The crypto industry advocacy group has placed its support behind Coin Center and its lawsuit against the U.S. Treasury over its Tornado Cash sanctions.

The Blockchain Association and the DeFi Education Fund have become the latest industry advocates to file their support of Coin Center’s lawsuit against the United States Treasury over its “unlawful” sanctions against Tornado Cash.

On June 2, the two cryptocurrency industry advocacy groups filed a joint amicus brief in support of Coin Center, arguing that the U.S. sanctions against the crypto mixer should be dropped.

1/ Today, my colleagues and I at @BlockchainAssn and our partners at @fund_defi filed an amicus brief in support of @coincenter's lawsuit against OFAC fighting against sanctions of the Tornado Cash software protocol.

https://t.co/mSZW7nVDOb pic.twitter.com/Y4CxjJtBrq
— Marisa Tashman Coppel (@MTCoppel) June 2, 2023

They called the sanctions imposed by the Treasury’s Office of Foreign Assets Control (OFAC) “both unprecedented and unlawful,” and added:

“OFAC’s sanctions are unlawful. OFAC lacks statutory authority to sanction software like Tornado Cash, and regardless, its decision lacks any factual predicate that could render the sanctions lawful.”

The associations argued Tornado Cash is software and while OFAC has the legal authority to sanction people or property, it cannot sanction a decentralized protocol.

“The core Tornado Cash software is not and cannot be owned by anyone,” they argued, claiming that OFAC “conjured” up a “person” so it had a basis to sanction the crypto mixer.

5/ By sanctioning the Tornado Cash software protocol, OFAC infringes on the right to free speech and due process.

Americans who wish to engage in anonymous speech or association can no longer do so.

Nor did they have notice when they were blocked from accessing their assets.
— Marisa Tashman Coppel (@MTCoppel) June 2, 2023

The brief admitted there was malicious use of the protocol for money laundering, mostly by North Korean-affiliated hackers, but also pointed to the other less nefarious uses — namely to enhance privacy on the publicly viewable Ethereum blockchain.

The groups argued the sanctions should be declared unlawful and the enforcement of them should be legally prohibited by the courts.

In April, the two groups similarly filed an amicus brief in support of a nearly identical lawsuit brought by six individuals against the Treasury Department over its Tornado Cash sanctions.

The lawsuit, filed in September, is backed by the crypto exchange Coinbase, which is similarly wanting to remove the ban on the mixer.

The Treasury, however, claimed such crypto mixers are a national security threat and Tornado Cash repeatedly failed to create controls to stop money laundering.

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Blockchain Association files further FOIA requests over banking closures

April 17, 2023 Coin Telegraph

Blockchain Association

The crypto advocacy group wants clarity on recent regulatory action against digital asset-friendly banks.

More Freedom of Information Act (FOIA) requests seeking information on recently closed crypto-friendly banks have been submitted by cryptocurrency advocacy group the Blockchain Association (BA) to two regulators.

On April 14, the Association said that in addition to the FOIA requests, it has also filed Freedom of Information Law (FOIL) requests to the Federal Housing Finance Agency (FHFA) and the New York Department of Financial Services (NYDFS).

The organization is seeking further information on the de-banking of crypto companies following the seizure of Signature Bank and the failure of Silvergate Bank.

The BA said that its request to the NYDFS was to:

“Seek to understand whether the closure of Signature Bank was the result of the bank’s insolvency or a decision to send an anti-crypto message despite the bank being fully solvent.”

The Association also reported that it was investigating whether the failure of Silvergate “was the result of a politically-motivated decision by the Federal Home Loan Bank of San Francisco, which is overseen by the FHFA, to take the extraordinary and unusual action of pulling a loan made to Silvergate only months earlier.”

1/ Following last month's FOIA requests to investigate the possible de-banking of crypto firms, today, BA submitted additional public information requests to the FHFA and NYDFS.https://t.co/x6sPRkUhBx pic.twitter.com/ZSeCSBiIaR
— Blockchain Association (@BlockchainAssn) April 14, 2023

In early March, Silvergate’s parent company announced it would “wind down operations” for the crypto and tech-focused bank. Its peer Silicon Valley Bank collapsed on March 10 following a bank run, and the Treasury, Federal Reserve, and other agencies closed Signature Bank on March 12.

The Association initially filed for further information from the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC) regarding the de-banking on March 16.

On April 16, the Blockchain Association and the DeFi Education Fund filed a brief in a United States District Court over the sanctioning of Tornado Cash.

The Blockchain Association is an advocacy and lobbying group for the crypto sector, with around a hundred members that include industry executives, investors, companies, organizations, and projects.

In 2022 the Association spent $1.9 million lobbying the U.S. government according to campaign finance data firm OpenSecrets.

Cointelegraph contacted the Blockchain Association for further details but did not immediately receive a response.

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Blockchain Association

Former SEC and FINRA staff

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