Michael Bacina, Steven Pettigrove, Tim Masters, Jake Huang,
Luke Higgins, Luke Misthos & Kelly Kim of the Piper Alderman
Blockchain Group bring you the latest legal, regulatory and project
updates in Blockchain and Digital Law.
ASIC doubles down on crypto strategy
ASIC Chair Joe Longo outlined ASIC’s stance in relation to
cryptocurrency in a recent interview with Sky News:
…people think crypto is not regulated. It is regulated. It may
not be completely regulated, which is why we have law reform
coming. So part of ASIC’s [regulatory] strategy is to test the
regulatory perimeter.
Mr Longo’s comments follow a number of ASIC actions in
recent months targeting crypto-related offerings, including its
decision to appeal the Federal Court’s judgment finding
that Finder Wallet’s Finder Earn product was not a
debenture. In his interview with Sky News, Mr Longo reiterated
ASIC’s view that the product is a debenture and ASIC’s
desire to send a strong message that it will take enforcement
action where it believes that cryptocurrency related offerings are
regulated.
When asked to elaborate on ASIC’s enforcement strategy, Mr
Longo commented:
My job is to administer the law. A lot of crypto-related
investment activity is subject to current regulation. If people
aren’t complying with the law at the moment, we will take
action.
There are a number of matters we are currently
investigating.
Turning to global regulatory developments, Mr Longo stated:
…what is interesting about what is happening internationally
is that each jurisdiction is taking a slightly different approach.
So the Americans, for example…it is all about whether
[cryptocurrency] is a security or not.
The [US regulatory environment] is very different to Australia,
[as] we have a regime around financial products and services.
If we think [a business offers] a financial product or service,
we will take action.
Every jurisdiction has a different approach, but we’re all
focused on consumer protection.
Mr Longo accepted that there are limits to the regulatory
perimeter and that greater clarity is required. In response to the
interviewer addressing the lack of specific legislation and
regulatory guidance regarding crypto-asset activities, Mr Longo
stated:
We are closely working with government and treasury to come up
with a regulatory framework which is more fit for purpose…the key
point is [crypto] is not entirely unregulated at the moment. If it
is a financial product or service, [ASIC] will be there.
Pressed on the timeline for much anticipated legislative
reforms, Mr Longo emphasised that there was still a long road
ahead, indicating that legislation could slip into next year or
even beyond the next election:
At the moment we are still in the consultation phase. The draft
legislation hasn’t been exposed yet. It is certainly a
government priority and we are doing everything we can to work with
government and treasury to get progress there. The government has a
lot on its plate.
Mr Longo concluded by reiterating his previous comments cautioning
investors from investing in assets which they don’t
understand.
As crypto-asset markets ramp up again, it looks like the
Australian crypto industry is set for more regulatory stick than
carrot in the near term. The legislative momentum which seemed to
be gathering pace in 2022 following a number of high profile
collapses has given way to a range of other priorities. This will
disappoint many industry advocates who have called for clear rules
to weed out “bad actors” and establish common rules for
the industry.
While ASIC has long argued for greater consumer protections in
relation to crypto-assets, the very absence of regulatory reform
risks leaving consumers exposed in the event of future collapses.
There is an urgent need to press on with establishing legislation
to protect consumers and harness the benefits of blockchain
technology, or risk driving innovators and consumers offshore as legislative efforts overseas continue to gather
pace.
US Congress to review bipartisan stablecoin bill
In a bipartisan effort to fortify the regulatory landscape
surrounding stablecoins, US Senators Kirsten Gillibrand and Cynthia Lummis
have introduced the “Lummis-Gillibrand Payment Stablecoin
Act” bill. The proposed legislation aims to establish a
clear regulatory framework for stablecoins, striking a balance
between fostering innovation, consumer protection, and maintaining
the integrity of the US dollar.
The core objective of the bill is to ensure that stablecoins
operate within a well-defined regulatory framework. This move comes
as various stakeholders, including Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen, advocate for
robust oversight of stablecoin operations.
The legislation proposes to mandate one-to-one reserves for
stablecoin issuers, which aims to ensure that issuers maintain
sufficient backing for their digital assets, mitigating the risk of
insolvency and loss for users. Moreover, the act prohibits the
issuance of unbacked algorithmic stablecoins, likely in response
several failures (see the Luna collapse of May 2022). Recognising the
global nature of digital finance, the bill also addresses illicit
finance and aims to prevent stablecoins from being used for money
laundering and terrorist financing.
Senator Lummis has been outspoken on the topic of cryptocurrency
and blockchain, often appearing to champion the cause:
While the legislation represents a significant step towards
regulating stablecoins, industry participants have voiced concerns
regarding its scope and potential implications. One immediate
concern revolves around the bill’s treatment of crypto-backed
tokens like DAI and the outright ban on algorithmic stablecoins.
Critics argue that the legislation lacks provisions addressing
these specific types of stablecoins, potentially leaving gaps in
regulatory coverage.
Moreover, the bill primarily focuses on regulating stablecoins
issued by US companies, raising questions about its efficacy in
addressing stablecoins issued by foreign entities such as Tether
(USDT). Although the legislation aims to curtail
the use of unregulated foreign stablecoins by imposing stringent
regulations on US-based issuers, there remains uncertainty about
its ability to prevent foreign entities from accessing US
customers.
Looking ahead, the fate of stablecoin legislation hinges on
several factors, including congressional priorities, legislative
timelines, and ongoing negotiations. With legislators increasingly
focused on campaign activities for the upcoming US presidential election, the window
for passing comprehensive stablecoin legislation may narrow.
However, there remains optimism that bipartisan support and growing
awareness of the need for regulatory clarity will propel the bill
forward.
While uncertainties persist, there is a palpable sense of
urgency to enact meaningful regulatory reforms that balance
innovation with consumer protection. As the debate surrounding
stablecoin regulation continues to evolve, stakeholders across the
financial ecosystem remain hopeful that concerted efforts will
yield a robust regulatory framework that fosters innovation,
safeguards consumers, and strengthens the integrity of the
financial system.
As the legislative journey unfolds, stakeholders must remain
vigilant, actively engaging with policymakers to shape the future
of stablecoin regulation and ensure a vibrant and resilient digital
economy for the future.
Consensys in discord with SEC as battle for Web3 heats up
The developer of the MetaMask cryptocurrency wallet, Consensys, has filed a lawsuit against the United
States Securities and Exchange Commission (SEC) pre-empting possible regulatory enforcement
action against the company. Consensys is seeking declaratory relief
that the Ether cryptocurrency, the native token of the Ethereum
blockchain, is not a security and that its MetaMask Swap and
Staking products do not violate securities laws. Consensys is also
seeking injunctive relief against investigations and enforcement
action against Consensys, including on the basis that it violates
Fifth Amendment protections on due process.
Consensys offers software solutions as well as blockchain
technology and services to Web3 participants, working closely with
the Ethereum Foundation. The complaint, filed in the United States
District Court for the Northern Division of Texas, referred to a
Wells Notice received by Consensys, foreshadowing possible SEC
enforcement action against Consensys and alleging Consensys
violated securities laws by offering the Metamask Swap and Staking
products.
Consensys took to their website to explain its action
against the SEC.
We took this step for two very basic reasons: (1) the SEC should
not be allowed to arbitrarily expand its jurisdiction to include
regulating the future of the internet; and (2) the SEC’s
reckless approach is bringing chaos to developers, market
participants, institutions, and nations who are building or already
managing critical systems running on Ethereum, the world’s
largest platform for decentralized applications.
Consensys’ action reflects a growing frustration in the
industry that the SEC’s approach to Web3 and cryptocurrency
involves a fundamental mischaracterization of the foundational
technology that Web3 is built on and represents a blatant refusal
to work with the industry to create clear rules and a pathway to
compliance.
Consensys’ Founder and CEO, Joe Lubin (who is also a
Co-Founder of the Ethereum blockchain), stated in the company’s blog post:
We have time and time again witnessed the current SEC contradict
itself with ever-changing views on the blockchain, consistently
mischaracterizing this technology and what is built on it as a
shallow and doomed investment scheme, rather than as the
breakthrough technology it is.
In Australia, the Australian Securities and Investments Commission
(ASIC) has adopted aspects of the United States’
regulation by enforcement approach promising to test the
regulatory perimeter insofar as existing financial services laws
apply to crypto-asset related products and service (with similarly mixed results). However, ASIC
is also working closely with Treasury on regulatory reforms to
establish a licensing regime for digital asset custodians and
intermediaries.
Consensys’ action highlight the US crypto industry’s increasingly combative stance in seeking to push
back on the SEC’s enforcement strategy. The SEC approach
has seen mixed results, with some notable defeats including its failure to establish
that the XRP token was inherently a security. With the SEC now
increasingly targeting what many regard as the “good
actors” in the industry, the US crypto industry increasingly
looks set for a showdown with the SEC over the future of Web3,
despite ongoing US legislative efforts to establish clear
ground rules for the industry.
US puts Samourai Wallet to the sword
The US Department of Justice (DOJ) has charged the founders of crypto-mixing
service, Samourai Wallet, with money laundering and unlicensed
money transmitting offences in the US. The DOJ alleges that
Keonne Rodriguez and William Lonergan Hill, as Samourai’s CEO
and CTO, were responsible for the ‘development, marketing, and
operation’ of the mixer since about 2015. It is alleged that
Samurai Wallet operated as an unlicensed money transmitting
business, obfuscating the sources of customer funds through two key
services, namely the ‘Whirlpool’ (mixing) service and
‘Ricochet’ (adding unnecessary intermediary transactions or
‘hops’ in the main transaction) service.
In a press release, US Attorney Damian Williams
noted:
Samourai…executed over $2 billion in unlawful transactions and
served as a haven for criminals to engage in large-scale money
laundering. Rodriguez and Hill allegedly knowingly facilitated the
laundering of over $100 million of criminal proceeds.
The pair were arrested on Wednesday, with Hill’s extradition
from Portugal pending approval. They will face trial in the US with
the District Judge Richard Berman hearing the case. In the
meantime, Samourai’s website and domain were seized in a joint
effort with law enforcement powers in Iceland and a seizure warrant
has been served on Google’s Play Store, restricting access to
the Samourai mobile application in the US.
Williams highlighted the US regulators’ heightened vigilance
towards the use of cryptocurrency in crimes:
Together with our law enforcement partners, we will continue to
relentlessly pursue and dismantle criminal organizations that use
cryptocurrency to hide illicit conduct.
The latest indictments follow the recent conviction of Roman Sterlingov, the
founder of the crypto mixer Bitcoin Fog, on four charges involving
money laundering. Three developers who allegedly created and
operated the Tornado Cash protocol are currently being prosecuted in the Netherlands
and the United States on anti-money laundering and sanctions
violations.
The US authorities’ controversial sanctioning of Tornado Cash now
appears to be part of a broader crack-down on privacy tech and
crypto mixing services. A key issue in these cases concerns the
extent of the alleged accused’s involvement in the development
and ongoing operation of the software and whether the software
itself could be infringing the laws in question, with many crypto
lawyers suggesting it cannot as it is merely self executing
code.
Binance faces class action in Canada
Binance, one of the largest cryptocurrency exchanges in the
world, was sued in Canada last week, over alleged violations
of Ontario’s securities laws. The class action lawsuit was
filed by Christopher Lochan and Jeremy Leeder, the representative
Plaintiffs demanding damages and rescission of sale contracts
entered into between retail customers and Binance. The plaintiffs
claimed that the cryptocurrency sales were ‘Illegal and void
for failure of the Defendants to register as required under the
[Ontario Securities Act] or to file a prospectus.’
The
certification motion dated 19 April, accepted the relevant
class in the lawsuit as all persons (excepting Binance or its
subsidiaries) from September 13, 2019 to the date of the
certification of the proceedings who purchased cryptocurrency
derivative contracts from Binance.
The plaintiffs additionally highlighted the importance of the
class action, submitting that the lead plaintiffs were only
‘two of the tens of thousands of Canadian users of the Binance
website who invested in cryptocurrency products and who claim that
those products were sold by the Defendants illegally.’
The certification states that Binance were previously notified
by the Ontario Securities Commission (OSC) that it
was contemplating enforcement proceedings:
On April 20, 2021, the Ontario Securities Commission
(“OSC”) notified Binance that it was contemplating
enforcement proceedings in respect of the Defendants “trading
in and distributing securities without registering with the OSC and
without filing a prospectus or obtaining an exemption, and that
Binance was carrying on business as a marketplace without
authorization.”
The class action follows the company’s withdrawal of
services from the Canadian Market in May 2023, which placed all
Canadian users into ‘liquidation-only mode’ from 1 October
2023 and indicative of the continued scrutiny Canadian authorities
have maintained over the exchange following the departure of
services from their lands.
The steps taken by the OSC against Binance can be seen as
another example of the increasing pressure major exchanges face by
global regulators despite the comparatively slow development of
clear regulation for exchanges worldwide.
#Blockchain #Bites #ASIC #doubles #crypto #strategy #Congress #review #bipartisan #stablecoin #bill #Consensys #discord #SEC #battle #Web3 #heats #puts #Samourai #Wallet #sword #Binance #faces #class #action #Canada #Fin #Tech
