by Britt Mosman, David Mortlock, Elizabeth P. Gray, J. Christopher Giancarlo, and Samuel Hall
This is Part III of a three-part post. For Part I, providing an overview of sanctions compliance issues for the cryptocurrency industry, click here. For Part II, discussing blocked coins, blocked persons, and sanctioned regions, click here.
by Britt Mosman, David Mortlock, Elizabeth P. Gray, J. Christopher Giancarlo, and Samuel Hall
This is Part II of a three-part post. For Part I, providing an overview of sanctions compliance issues for the cryptocurrency industry, click here. Part III will discuss restricted transactions, blocking and rejecting crypto transactions, and compliance considerations.
Fortunately, there are some clear rules of the road. Certain cryptocurrencies have been blocked outright, and U.S. persons are prohibited from dealing in them or facilitating any dealings in them. In March 2018, President Trump issued Executive Order 13827 to prohibit U.S. persons from dealing in digital currencies that were issued by, for, or on behalf of the Government of Venezuela after January 9, 2018. The Order was a response to the Maduro regime’s launch of its own sovereign cryptocurrency, the “Petro,” in part to circumvent U.S. sanctions.
by Britt Mosman, David Mortlock, Elizabeth P. Gray, J. Christopher Giancarlo, and Samuel Hall
In recent years, the U.S. government has become increasingly focused on regulating the use of virtual currencies as a means of addressing a host of financial crimes and malign activities. As entities and individuals (“persons”) in this space find themselves subject to various, sometimes overlapping regulatory regimes, the compliance environment has become increasingly treacherous. One area of particular concern for those dealing with cryptocurrencies is U.S. economic sanctions, as is evidenced by the recent settlement between the Treasury Department’s Office of Foreign Assets Control (“OFAC”) and BitPay Inc. (“BitPay”), discussed below. Indeed, sanctions hold some of the most complicated compliance issues in one hand, and some of the largest penalties in the other, and they do not always—or perhaps rarely—fit cryptocurrency transactions neatly.
This post provides an overview of sanctions compliance principles for the cryptocurrency industry and discusses some key issues of which persons in the crypto space should be mindful, including:
As this post makes clear, some of the relevant prohibitions remain ambiguous and leave significant questions unanswered. In turn, some crypto transactions and related regulations may warrant license and guidance requests to OFAC or even legal challenges, including Administrative Procedure Act (“APA”) challenges, in U.S. courts to resolve those ambiguities. But at a minimum, there are certain basic steps that should be taken to comply with U.S. sanctions.
by William J. Stellmach, Amelia A. Cottrell, Elizabeth P. Gray, Paul J. Pantano Jr., Neal E. Kumar, and Samantha G. Prince
A recent decision by a federal judge in Illinois caps a series of setbacks for federal prosecutors bringing cases born out of parallel investigations with U.S. regulatory agencies. Increasingly, courts have faulted the U.S. Department of Justice (“DOJ”) and regulatory agencies for failing to ensure that their respective investigations remain separate and distinct, triggering broader disclosure obligations for prosecutors. Those higher hurdles, while increasing government transparency for those being investigated, may also increase the risk of greater costs for financial institutions and companies confronting multiple, uncoordinated investigations. If government authorities interpret their latest reversals as mandating less coordination and collaboration with one another, then investigatory targets may ultimately pay the price.
by Justin L. Browder, J. Christopher Giancarlo, Conrad G. Bahlke, James R. Burns, Anne C. Choe, Elliot J. Gluck, Elizabeth P. Gray, and Artyom Rogov
The staff of the Securities and Exchange Commission’s Division of Examinations (the “Division”) published a risk alert on February 26, 2021,[1] offering guidance on the digital-asset related activities that the Division will focus on during examinations of investment advisers, broker-dealers, exchanges and transfer agents. Notably, the guidance applicable to investment advisers and broker-dealers, in certain instances, applies to both digital assets that are securities (“Digital Asset Securities”) as well as other digital assets issued and/or transferred using distributed ledger or blockchain technology – including, but not limited to, virtual currencies, coins and tokens – that may or may not be securities under the federal securities laws (“digital assets”).
The Division’s continued focus on this area is further demonstrated by the inclusion of digital assets and FinTech as priorities in the Division’s 2021 Examination Priorities, which were published on March 3, 2021.[2] The Examination Priorities release notes that examinations of market participants engaged in digital asset activities will continue to assess: (i) whether investments are in the best interests of investors; (ii) portfolio management and trading practices; (iii) safety of client funds and assets; (iv) pricing and valuation; (v) effectiveness of compliance programs and controls; and (iv) supervision of representatives’ outside business activities.
In this post, we outline the key areas of focus highlighted by the Division in the February 26th risk alert.
by J. Christopher Giancarlo, Elizabeth P. Gray, Justin L. Browder, Conrad G. Bahlke, and Richard M. Borden
On October 1, 2020, the Cyber-Digital Task Force (“Task Force”) of the United States Department of Justice (“DOJ”) issued a Cryptocurrency Enforcement Framework (“Framework”).[1] The Framework summarizes threats posed by illicit uses of cryptocurrency, the applicable laws that the DOJ and other federal regulatory agencies apply in seeking to identify and mitigate such threats, and the ongoing challenges faced by the DOJ in prosecuting criminal conduct in the digital asset ecosystem. The Framework details an extensive array of federal, state, and international laws and regulations that apply to cryptocurrencies and reflect the emerging approach to cryptocurrency regulation and enforcement by federal and state governments. While the extensive patchwork of regulations suggests a need for harmonization, the Framework refrains from calling for any new or amended legislation, regulation, or other rules. It also does not discuss the government’s use of sophisticated technology to track cryptocurrency transactions and develop its cryptocurrency-related cases. Importantly, the Framework does not advocate for legal or regulatory suppression of cryptocurrency, as some initial commentators suggested.