Crypto Firms Expand Their Offerings; FATF Releases Virtual Assets Update; The CFTC pursues the application of cryptography; Israeli Agency Seizes Hezbollah Crypto | BakerHotelier

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Crypto Firms Expand Offerings in Stablecoins and Private Key Management

By Robert A. Musiala Jr.

Stablecoin issuer Pax Dollar (USDP) recently announced that USDP is now available to all Mexican customers of a major Latin American online payment platform. According to a press release, “Mexico is one of the most active markets for digital assets with millions of users leveraging the ecosystem to access key financial services.”

Another recent press release announced that Fireblocks, a digital asset enterprise platform provider, has extended “its highly secure MPC-CMP wallet and key management technology to include support for HSMs. and public and private cloud, including Thales, Securosys…GCP and Alibaba Cloud.” According to the press release, among other things, the expanded product offering will include (1) the ability for customers to host all MPC keyshares on multiple servers in their data centers and cloud; (2) new cloud data centers in the EU, Switzerland, and Hong Kong, as well as existing Fireblocks cloud data centers in the United States; and (3) a dedicated, single-tenant cloud environment.

In other payments news, the Bank for International Settlements (BIS) recently released an interim report on Project Mariana, which is developing wholesale central bank digital currency (wCBDC) experiments “with the aim of ‘to improve the efficiency, security and transparency of currency trading and settlement.’ According to the interim report, among other things, Project Mariana borrows from decentralized financial technology by exploring “joint trading and settlement in wCBDCs using a so-called automated market maker,” “testing a standard common for wCBDC fungible tokens” and “investigates the mobility of assets between different blockchain-based networks using so-called bridges.

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FATF issues targeted update on virtual assets

By Robert A. Musiala Jr.

The Financial Action Task Force (FATF) recently released a report titled Focused Update on the Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers. According to a FATF press release, the targeted update “provides an update on the country’s compliance with FATF Recommendation 15 and its interpretative note (R.15/INR.15), including the travel rule , and updates on emerging risks and market developments, including decentralized finance (DeFi), peer-to-peer (P2P) transactions and non-fungible tokens (NFT), non-hosted wallets and stablecoins.Among other things, the report discusses the following key findings:

Based on 98 FATF mutual evaluation and follow-up reports since the adoption of Revised R.15/INR.15, 75% of jurisdictions only partially comply or do not comply with FATF requirements relating to AV and PSAV. Of the 151 jurisdictions that responded to the FATF 2023 survey, more than half have still not taken action to implement the travel rule as it relates to VAs. Although DeFi and non-hosted wallets do not represent a significant share of VA transactions, they are at risk of being misused, including by sanctioned actors.

According to the report, the FATF will publish another targeted update report in 2024, along with a “table showing the steps that FATF member jurisdictions…have taken to implement R.15 (e.g., undertaking a risk assessment, enacting legislation to regulate VASPs, conducting surveillance inspection, etc.).

For more information, please see the following links:

Nevada financial regulator seeks to place crypto custodian in receivership

By Joanna F. Wasick

The Nevada Financial Institutions Division (NFID) recently asked its state court to place a Nevada-registered crypto custodian in receivership. A press release from the NFID explains that the motion “asks the court to appoint a receiver to take over the day-to-day operations of the company and thoroughly review all of its finances” to determine the best option to protect the custodian’s customers, “either by by rehabilitating and handing over the company to private management or by liquidating the company”. Earlier this month, the NFID filed a cease and desist order alleging the custodian had “significantly deteriorated to a critically deficient level” and was in a position “where he is in a dangerous condition. or unsanitary to do business”. The receivership application provides more details, stating that the custodian owes clients more than $85 million in fiat but only has $3 million on hand. Similarly, the custodian owes $69.5 million in crypto and only has $68.6 million in crypto. According to the petition, at least part of the custodian position is the result of poor communication between old and new management, which led to an inability to access many client accounts. Notably, this receivership request comes days after another crypto custodian reportedly rescinded its offer to acquire its struggling competitor.

For more information, please see the following links:

CFTC Announces Multiple Enforcement Actions Alleging Digital Asset Fraud

By Robert A. Musiala Jr.

The United States Commodity Futures Trading Commission (CFTC) recently issued several press releases announcing digital asset enforcement actions. The first press release announced a lawsuit against William Koo Ichioka, alleging that the defendant solicited and embezzled more than $21 million from more than 100 commodity pool participants in a fraud scheme promising investments. in bitcoin and ether with a duration of “30 business days with a 10% return.” According to a CFTC press release, the defendant misappropriated funds from investors, using them “to reimburse other participants , as well as for her personal use and expenses, such as luxury automobiles, jewelry, and rent payments.” According to a statement from CFTC Commissioner Kristin N. Johnson, “To conceal the losses, Ichioka has falsified financial documents to inflate the amount of assets in pool accounts and also provided participants with false account statements.” The United States Department of Justice (DOJ) and the United States Securities and Exchange Commission have both filed parallel actions. Among other things, the DOJ action accused Ichioka of wire fraud, filing false or fraudulent tax returns, and securities and commodity fraud.

A second press release from the CFTC announced enforcement action against a defendant who allegedly “diverted more than $1.3 million in client funds intended for trading digital asset commodities and currencies.” The defendant allegedly operated a “romance scam” known as “Pig Butchering” in which the defendant had a romantic relationship with at least 29 clients before soliciting them to participate in a fraudulent financial opportunity. According to the CFTC press release, instead of using client funds for trading digital assets and forex, the defendant diverted the funds for his personal use and “transferred the majority of the funds to accounts banks, digital wallets and digital asset trading platforms under the control of the other members of the fraudulent scheme”.

A third CFTC press release announced a default judgment against a defendant who “operated a fraudulent scheme that solicited and misappropriated funds to allegedly trade commodity digital assets.” According to the CFTC press release, “more than 150 individuals and entities have deposited at least $33 million” with the defendant but “less than $10 million has been used to exchange basic digital assets and the remaining funds have been diverted for personal gain or to prolong the fraudulent traffic”. trade regime.

For more information, please see the following links:

Israel Agency Seizes Hezbollah Crypto; Publication of a report on illicit cryptos

By Robert A. Musiala Jr.

According to a recent blog post by blockchain analytics firm Chainalysis, “Israel’s National Counterterrorism Financing Bureau (NBCTF) has, for the first time ever, seized cryptocurrency from Hezbollah, a group a heavily sanctioned Lebanese-based terrorist, and Iran’s Quds Force, which funds and works extensively with Hezbollah. The blog post notes that the Israeli agency “seized approximately $1.7 million worth of cryptocurrency and disrupted the cryptocurrency-based terrorism financing infrastructure operated jointly by the two organizations.” Among other things, the blog post provides details of the methods used by Hezbollah to move funds “first from facilitators financial services to hawala services and OTC brokers, then to addresses controlled by Hezbollah to the general public”. [cryptocurrency] Exchanges.”

Another blockchain analytics company, TRM Labs, recently released its Illicit Crypto Ecosystem report. The report “covers over 20 blockchains and covers all major known forms of crypto-mediated illicit finance, as well as the use of cryptocurrency to launder the proceeds of crime.” The first part of the report “maps the criminal activities that generate crypto proceeds of crime, including illicit trade, illicit payments, fraud, and theft.” The second part “lists how the crypto ecosystem is used to launder the proceeds of crime, whether fiat or crypto”. Among its many findings, the report notes that “the declining value of crypto does not appear to have deterred criminals from using and exploiting crypto” and “different types of crypto crimes and their perpetrators do not operate in silos; on the contrary, they are closely linked.

For more information, please see the following links:

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