US Banking Industry’s Lobby Group Helped Write Elizabeth Warren’s Anti-Crypto Bill, According to Senator

December 21, 2023 The Daily Hodl

Swan Bitcoin to terminate customer accounts that use crypto-mixing services

November 14, 2023 Coin Telegraph

Swan co-founder Yan Pritzker said the firm is pro-privacy and doesn’t oppose customers’ use of such services, but to work, it has to follow FinCEN regulations.

Bitcoin (BTC) services platform Swan Bitcoin warned its customers that it would be forced to terminate accounts found interacting with crypto-mixing due to the regulatory obligations of its partner banks.

Customers were informed about the policy in a letter suggesting the changes are due to the United States Financial Crimes Enforcement Network (FinCEN) proposed rule establishing new responsibilities on firms processing transactions from mixing services.

On Nov. 12, the co-founder of the firm, Yan Pritzker, took to X (formerly Twitter) to explain that although the firm is not against the use of privacy mixing tools and services, it has to adhere to the obligations of its partner banking institutions.

Pritzker said that the proposed FinCEN rule is poorly written and covers a huge amount of Bitcoin-related activities, such as using BTC addresses only once, mixing funds and prohibiting the use of any programmable transactions, such as on Lightning Network channels.

He added that mixing services are painted with a scary brush instead of what they are: a common way to break large amounts of Bitcoin into small ones with privacy in focus.

Financial regulators in the U.S. have portrayed crypto-mixing services as a route for illicit activities and have sought to curb the services. Regulators have sanctioned such activities and have also prosecuted and jailed the creators of Tornado Cash. Pritzker added:

“In fact, we have written and published privacy guides that encourage mixing and promoted companies like Wasabi and Samourai. We believe that mixing is normal, privacy is not a crime, and that using unmixed Bitcoin is similar to bringing your whole paycheck to the grocery store to pay for an apple.“

Pritzker stated that the current political climate has put a lot of fear into the banking sector, with most banks simply refusing to do business with anything in crypto. Thus, for them to continue their Bitcoin on-ramp services, their custody partner has to interact with banking services governed by FinCEN regulations.

In its letter to customers, Swan Bitcoin also suggested ways such policies can be opposed and said educating the masses on Bitcoin is the first step towards that.

Magazine: Should you ‘orange pill’ children? The case for Bitcoin kids books

Ethics watchdog rats out Circle for links to Tron in letter to Sens. Warren, Brown

November 11, 2023 Coin Telegraph

Circle

The Campaign for Accountability wanted to let the anti-crypto senators know that the threat of terrorist financing with crypto was worse than they thought.

Nonprofit ethics group Campaign for Accountability (CfA) sent a letter to U.S. Senators Elizabeth Warren and Sherrod Brown on Nov. 9 to present them with information on the alleged use of cryptocurrency in money laundering. The letter discussed the Tron blockchain and stablecoin issuer Circle in particular.

In the letter signed by CfA executive director Michelle Kuppersmith, it is alleged that USD Coin (USDC) issuer Circle has extensive ties to both Justin Sun’s Tron Foundation (TRX) and major Wall Street investors such as Goldman Sachs, Bank of New York Mellon and Blackrock.

Kuppersmith called Circle’s connections to Wall Street “surprising" in light of its supposed lack of regulation and Tron's alleged connections with terrorism financing.

Tron is under investigation by the U.S. Securities and Exchange Commission for unregistered securities sales and has been linked to the alleged financing of the Palestinian Islamic Jihad and possibly Hamas and Hezbollah, the letter outlined. Meanwhile, it claimed that $400 million worth of USDC is in the Tron ecosystem. The letter said:

“Recently published studies and reports of law enforcement operations indicate a prominent US- based cryptocurrency company backed by major Wall Street investment houses [Circle] may be directly or indirectly compromised by its integration with an Asia-based network of trading platforms and cryptocurrencies.”

That network, Tron, “has been named in multiple international law enforcement actions involving billions of dollars in transactions by alleged organized crime groups and sanctioned entities.”

These concerns go beyond the issues raised in the letter the senators, along with over 100 other legislators, sent to the National Security Advisor and Treasury Undersecretary for Terrorism and Financial Intelligence, Kuppersmith added. The letter referred to was sent by the bipartisan group of lawmakers on Oct. 17. Crypto advocacy groups took issue with several of the claims made in that letter.

The CfA letter to Sens. Brown and Warren. Source: CfA

Furthermore, the letter questions Circle's apparent lack of regulation, and its operation of an “unregulated cross chain protocol.”

"While Goldman, BNY and Blackrock are all registered with and regulated by multiple federal and state banking and securities authorities, Circle has either avoided or failed to subject itself to primary prudential regulation since its founding a decade ago, a concern Campaign for Accountability flagged to the SEC in May of 2022," the letter outlines.

On Nov. 10, the CfA also submitted a comment on the Department of Treasury Financial Crimes Enforcement Network’s October proposal to designate crypto mixers as money-laundering hubs.

The proposal “is worthwhile but may soon be obsolete unless the scope of the regulation is broadened to include newer methods criminal groups have adopted using virtual currencies,” the organization said.

Despite being a US company, Circle has either avoided or failed to subject itself to primary or prudential regulation since its founding a decade ago, a concern Campaign for Accountability flagged to the SEC in May of 2022. https://t.co/4s8w98JL8S
— Campaign for Accountability (@Accountable_Org) November 9, 2023

In the comment, the CfA discusses cross-chain protocols and Sun’s SunSwap decentralized exchange protocol, which blockchain forensics firm Elliptic has identified as “the medium where terrorist organizations obtain the necessary [digital currency].”

The organization adds that “Sun is reported to have direct ties to the Communist Party of China,” citing a report that Sun participated in a research project at China’s Central Party School.

Magazine: Justin Sun’s SUI-farming sins, PEPE’s wild run, 3AC’s oyster philosophy: Asia Express

$144,000,000 Worth of Bitcoin Linked to Defunct Darknet Marketplace Suddenly Moves to Crypto Mixer: On-Chain Data

October 25, 2023 The Daily Hodl

Regulators around the globe assert more control over crypto: Law Decoded

October 23, 2023 Coin Telegraph

Coin Telegraph

From Hong Kong to Europe and the United States, regulators are pushing for more oversight and control over digital assets.

In the last week, several major financial regulators, both national and international, simultaneously produced new guidelines for decentralized assets. The European Banking Authority and the European Securities and Markets Authority proposed guidelines for assessing the suitability of management members in crypto firms, offering standardized criteria for evaluating their knowledge, expertise, integrity and ability to dedicate adequate time to fulfill their responsibilities.

The Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) proposed to oblige banks to provide both quantitative and qualitative data on exposures to crypto assets and the corresponding capital and liquidity requirements. According to the BIS, using a uniform disclosure format will encourage the application of market discipline and lessen information asymmetry between banks and market participants.

The United States Treasury Department’s Financial Crimes Enforcement Network proposed designating cryptocurrency mixing as an area of “primary money laundering concern” following Hamas’ attack on Israel. It suggests requiring domestic financial institutions and agencies to “implement certain recordkeeping and reporting requirements” for crypto mixers transactions.

The Hong Kong Securities and Futures Commission (SFC) will make certain digital currency products available only to professional investors. The updated requirements consider digital assets “complex products” under the SFC and subject to the same guidelines as similar financial products. The commission mentions crypto exchange-traded funds and products issued outside Hong Kong as complex products.

FTX court updates

FTX’s former general counsel Can Sun was unaware of the exchange’s comingling of funds with Alameda Research, he told jurors during his testimony in Sam Bankman-Fried’s criminal trial. Sun said he learned from other employees about Alameda’s exemption from the liquidation engine system in August 2022. Typically, the system would liquidate loss-making trades, but Alameda reportedly bypassed the mechanism due to its exception.

Accounting professor Peter Easton provided a breakdown of the alleged commingling of funds between FTX and Alameda Research since 2021. According to Easton’s analysis, Alameda invested in Genesis Capital, K5 Global Holdings, Anthropic PBC, Dave Inc, Modulo Capital and other ventures, partially using funds from FTX customers. In June 2022, Alameda had a negative balance of $11.3 billion with FTX, while the companies’ liquid assets stood at $2.3 billion, meaning a gap of $9 billion between the sister firms. Another critical point from the analysis: Alameda has 57 accounts with FTX that could have negative balances, whereas no other customer could do so. The analysis challenges Bankman-Fried’s defense argument that Alameda had similar privileges as other market makers on FTX.

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Pennsylvania aborts two-year mining moratorium bill

A Pennsylvania House Representative has cut a two-year crypto mining ban from a bill to regulate the sector’s energy consumption, claiming trade labor unions pressured the change. The committee’s chair and the bill’s sponsor, Democratic Representative Greg Vitali, revealed that Democratic Party leaders pressured him not to run the bill inclusive of the moratorium. Vitali said building trade labor unions had “chronic opposition” to environmental policy and claimed the unions had his Democratic colleagues in their pocket. According to the politician, voting against the unions would risk the Democratic majority in Pennsylvania’s House, and he would rather see the bill pass sans moratorium than not at all.

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Gemini, Genesis, DCG accused of $1 billion fraud

New York’s attorney general has filed a lawsuit against cryptocurrency firms Gemini, Genesis and Digital Currency Group (DCG) for allegedly defrauding investors through the Gemini Earn investment program. An official statement from the office of Attorney General Letitia James outlines the basis of the charges, claiming that the companies defrauded more than 23,000 investors, including 29,000 New York citizens, of more than $1 billion. An investigation carried out by James’ office claims that Gemini lied to investors about its Gemini Earn investment program, which it ran in partnership with Genesis. It argues that while Gemini had assured investors that the program was a low-risk investment, investigations reveal that Genesis’ financials “were risky.”

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FinCEN Introduces New Rulemaking Proposal To Surveil Crypto Mixing Services, Citing Patriot Act

October 23, 2023 The Daily Hodl

FinCEN issues alert regarding crypto transactions connected to Hamas

October 20, 2023 Coin Telegraph

Bitcoin Wallet

The government department warned virtual asset service providers and other financial institutions to “identify and report suspicious transactions” related to terrorist groups.

The United States Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, issued an alert for financial institutions as part of efforts to identify “suspicious activity” related to funding terrorist groups.

In an Oct. 20 notice, FinCEN said that the militant group Hamas — behind the Oct. 7 attack on Israel — employed “fundraising campaigns involving virtual currency and fictitious charities raising both fiat and virtual currency” to fund its activities. The government department warned virtual asset service providers and other institutions to “identify and report suspicious transactions” potentially connected to Hamas.

Specifically, FinCEN cautioned financial institutions to be wary of clients who have conducted transactions with a business in a jurisdiction associated with Hamas, entities already on the Office of Foreign Assets Control’s list of Specially Designated Nationals, and those that solicit crypto donations on social media. The announcement came less than 24 hours after the government department proposed designating crypto mixing as an area of “primary money laundering concern” related to terrorism.

Today, Treasury’s Financial Crimes Enforcement Network announced a proposed rule to increase transparency around international Convertible Virtual Currency Mixing to combat its use by malicious actors including Hamas, Palestinian Islamic Jihad, & the DPRK. https://t.co/1atRjZnjwo
— Treasury Department (@USTreasury) October 19, 2023

FinCEN’s alert followed concerns about crypto voiced by U.S. lawmakers in the wake of Hamas’ attack on Israel. On Oct. 17, more than 100 members of Congress called on the administration of U.S. President Joe Biden to “swiftly and categorically act to meaningfully curtail illicit crypto activity.” U.S. Treasury officials also added a Gaza-based crypto operator allegedly tied to Hamas to its list of sanctioned entities.

In March 2022, FinCEN issued a similar warning to financial institutions over Russian entities’ attempts to evade sanctions using crypto. The notice came days after the Russian military invaded Ukraine in February 2022.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Bipartisan bill to regulate DeFi, crypto security risks introduced into US Senate

July 19, 2023 Coin Telegraph

ATM

The bill was introduced in the evening and has not been published yet, but it is already causing a stir. Crypto Twitter calls it a “nonstarter.”

United States Sen. Jack Reed sponsored a bipartisan bill introduced into the Senate on July 18 that would tighten Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations and sanctions requirements for decentralized finance (DeFi). According to a news release on Reed’s website, the bill is titled the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act.

The bill would subject DeFi operations to the same requirements as “other financial companies, including centralized crypto trading platforms, casinos, and even pawn shops.” The bill would make “anyone who controls that project” liable for the use of the DeFi service by sanctioned persons. Furthermore:

“If nobody controls a DeFi service, then — as a backstop — anyone who invests more than $25 million in developing the project will be responsible for these obligations.”

The bill would also “modernize” Treasury Department AML powers by extending them beyond the traditional financial system. According to the statement:

“As new technologies like cryptocurrency increasingly enable new ways to conduct financial transactions, it is critical to extend Treasury’s authority to crack down on illicit financial activity that may occur outside the banking sector.”

The bill also set new requirements for operators of crypto kiosks (or ATMs) to prevent their use in money laundering. Kiosk operators would be required to verify the identities of both counterparties in a transaction.

The bill has not been published at the time of writing. A member of Reed’s staff contacted by Cointelegraph could not say when the bill would be published. A text purporting to be the draft bill has been posted on GitHub.

Case in point:

The definition of "control" is so broadly worded that it's meaningless. No thresholds, no specifics, just "control," as determined by the Secretary of the Treasury. Completely and utterly unworkable.https://t.co/rVk26MJwfA
— Meat (,) (@MeatEsq) July 19, 2023

Crypto Twitter has wasted no time in condemning the bill. One commenter called it “an existential threat to DeFi” and a “nonstarter.” Another said that “imposing control responsibility for a $25mm investment is going to chill VC investment into DeFi b/c passive tokenholding does NOT equal control.”

Sens. Mike Rounds, Mark Warner and Mitt Romney are cosponsors of the bill. Reed and Warner were cosponsors of a bill introduced by Sen. Elizabeth Warren — the Digital Asset Sanctions Compliance Enhancement Act — in March 2022.

Magazine: US enforcement agencies are turning up the heat on crypto-related crime

Bittrex withdrawals set to resume after bankruptcy court gives green light

June 15, 2023 Coin Telegraph

Bittrex

The court left the issue of the subordinacy of government claims open; Bittrex received multimillion-dollar credits from FinCEN and OFAC.

Cryptocurrency trading platform Bittrex is expected to resume customer withdrawals on June 15 following an order from a judge in the United States Bankruptcy Court for the District of Delaware. The decision does not settle the question of the subordination of U.S. government claims, which had led to objections against its plan.

“Objections (if any) to the Motion having been withdrawn, resolved or overruled on the merits,” Judge Brendan Shannon’s June 13 order read. It went on to stipulate that nothing in the motion or the order constituted a finding on whether crypto assets or transactions with them are securities.

The order also specified that it does not determine the priority of creditors or prohibit the United States from clawing back assets from customers if it is not paid in full. Bittrex’s largest creditor is the U.S. Treasury’s Office of Foreign Assets Control (OFAC), to which it owes $24 million.

Bittrex general counsel David Maria told Cointelegraph:

“We are happy that the court will allow us to let customers access their accounts and withdraw any remaining assets, and we hope that our customers will take advantage of this opportunity. Our goal has always been to make all of our customers whole during this process.”

Maria said the platform is expected to be fully operational for withdrawals by 3:00 pm ET (7:00 UTC) on June 15.

Seattle-based Bittrex declared its intention to wind down U.S. operations by the end of April. It declared bankruptcy in May after the U.S. Securities and Exchange Commission sued the exchange for unregistered securities transactions.

@Arbitrum has landed on Bittrex Global.

The $ARB wallet is now open, and trading will begin shortly on https://t.co/WGrJdX34kU. pic.twitter.com/JT4hj9yULC
— Bittrex Global (@BittrexGlobal) June 15, 2023

All of that came after OFAC and the Treasury’s Financial Crimes Enforcement Network (FinCEN) assessed penalties of $24 million and $29 million, respectively, for violating sanctions imposed on Crimea, Cuba, Iran, Sudan and Syria. The exchange received credit worth $5 million from FinCEN and $24 million from OFAC at that time.

The U.S. Justice Department had opposed a Bittrex plan to reimburse customers, subordinating government claims.

Magazine: Can you trust crypto exchanges after the collapse of FTX?

US DOJ opposes bankrupt Bittrex’s plan to repay customers ahead of credited fines

June 8, 2023 Coin Telegraph

Bankruptcy

Bittrex owes $29 million on penalties for sanctions violations and may still face penalties in a case brought by the SEC.

The United States Justice Department (DOJ) has filed an objection to a motion by bankrupt cryptocurrency trading platform Bittrex to allow customers to withdraw their crypto and fiat. The U.S. Treasury’s Office of Foreign Asset Control (OFAC) is Bittrex’s biggest creditor, but its claim would be subordinated under the Bittrex proposal.

Bittrex was charged in October by both OFAC and the Treasury’s Financial Crimes Enforcement Network (FinCEN) with sanctions violations for allowing individuals based in Crimea, Cuba, Iran, Sudan and Syria to carry put transactions from 2014 to 2017. The agencies assessed penalties of $24 million and $29 million, respectively.

A Bittrex spokesperson told Cointelegraph at the time that the exchange was “pleased” to resolve the charges. It agreed to pay the $24 million of its penalty to FinCEN, receiving $5 million credit from FinCEN, while OFAC credited Bittrex $24 million, which remains Bittrex’s largest debt.

The crypto platform’s problems did not stop there. The U.S. Securities and Exchange Commission sued Bittrex for unregistered securities operations in April, and that action could also result in monetary penalties. In May, Bittrex declared bankruptcy in the U.S. Bankruptcy Court for the District of Delaware. Within days of its bankruptcy filing, Bittrex proposed a plan to make customers whole.

Interesting. Number One creditor for #Bittrex is OFAC (Office of Foreign Assets Control) responsible for AML (Anti Money Laundering) admin & enforcer of economic & trade sanctions based on US foreign policy & national security goals. Now we know why they went into Chapter 11. pic.twitter.com/sAg96t3jv3
— Simon Dixon (@SimonDixonTwitt) May 9, 2023

The DOJ argued in its June 7 filing that the Bittrex proposal improperly applies the standard that would allow it to pay some creditors ahead of others. The filing stated:

“Fairness and equity demand that if the OFAC and FinCEN Debts cannot be paid in full by confirmation, the United States should have a chance to prove that the cryptocurrency assets belong to the Debtors and can be clawed back from the customers.”

The DOJ also objected that the Bittrex motion is premature, as the Bittrex bankruptcy has yet to be confirmed by the court. The bankruptcy hearing will be held on June 14.

Magazine: Rogue states dodge economic sanctions, but is crypto in the wrong?

fincen